Two of Canada's biggest pension funds are exploring options including a sale of Cubico Sustainable Investments that could value the renewable energy firm at about $6 billion or more, including debt, according to people familiar with the matter.
Montreal-based Public Sector Pension (PSP) Investment Board and the Ontario Teachers' Pension Plan (OTPP) are looking to appoint a financial advisor in the coming weeks, the sources said, adding the sale could take several months to complete.
The sources, who requested anonymity as the matter is confidential, cautioned a deal is not guaranteed and is subject to market conditions.
Cubico's owners are aiming for a valuation of about 10 times its earnings before interest, taxes, depreciation, and amortization (EBITDA) of $641 million in 2022, the sources said.
Ontario Teachers' and PSP declined to comment. Cubico did not immediately respond to requests for comment.
The potential sale of Cubico comes at a time when renewable power developers and other service providers focused on energy transition have become attractive acquisition targets for infrastructure investors and corporate utilities.
Ontario Teachers' currently manages net assets worth C$247.2 billion ($184.31 billion), while PSP oversees roughly C$243.7 billion of assets.
PSP has a portfolio of hydroelectric, wind and solar assets worth $1 billion in Canada, and has invested in offshore wind development in the United States, Europe and Asia.
Ontario Teachers' has invested alongside major U.S. utility NextEra Energy (NEE) in the United States, and struck a deal to finance offshore wind development with Australia's Macquarie Group (MQG.AX).
In 2015 the two funds partnered with Banco Santander SA (SAN.MC) to launch Cubico, and became equal owners after buying out the Spanish bank's stake the following year.
Cubico operates wind and solar farms in 12 countries in Europe and America, as well as concentrated solar power and transmission line technology operations with a capacity of 2.8 gigawatts (GW).
The company is also developing and constructing over 2.2 GW of additional capacity, according to its website.
Let's go back seven years ago when Benefits Canada reported that Ontario Teachers’and PSP increased their stake in Cubico:
The Ontario Teachers’ Pension Plan and the Public Section Pension Investment Board will buy out Banco Santander’s interest in Cubico Sustainable Investments. The three firms launched the London-based renewable energy and water infrastructure company in May 2015.
After the acquisition, PSP Investments and Ontario Teachers’ will each own 50 per cent of Cubico’s shares.
Cubico’s initial portfolio included 18 water, wind and solar infrastructure assets with a net capacity of 1.2 gigawatts. The company has since acquired four new assets, bringing its net capacity to 1.62 gigawatts. Cubico’s 22 assets are in Brazil, Italy, Ireland, Mexico, Portugal, Spain, United Kingdom and Uruguay.
“Our increased participation in Cubico is aligned with PSP Investments’ long-term investment approach and strategy to leverage industry-specific platforms and develop strong partnerships with liked-minded investors and skilled operators,” Guthrie Stewart, senior vice-president and global head of private investments at PSP Investments, said in a release.
“Cubico’s flexible investment and acquisition approach fits well with Ontario Teachers’ approach to private investments,” Andrew Claerhout, senior vice-president of infrastructure at Ontario Teachers’ said in the release.
Cubico Sustainable Investments is a world leader in providing renewable energy, the fastest-growth energy source, across the Americas, Europe and Australia. Established in 2015, the company is jointly owned by Ontario Teachers’ Pension Plan and PSP Investments.
Cubico has turned out to be a great asset for PSP and OTPP and they're looking to cash in on it and strike while demand for sustainable investments is very strong.
According to sources, the reported sale price of USD $6 billion is about 10 times its earnings before interest, taxes, depreciation, and amortization (EBITDA) of $641 million in 2022.
The company has grown by leaps and bounds over the last seven years and all you need to do is check out it newsroom to see the deals it has announced over the years.
One of the bigger high profile deals was in 2019 when Cubico closed an 162MW project which included power for Starbucks:
Cubico Sustainable Investments, headquartered in London, announces that financing has been secured for a 162MW solar PV project in Brazoria County, Texas.
The project has a 15-year power purchase agreement (PPA) with international coffeehouse giant Starbucks and this includes a 12-year bodily hedge from BP.
Cubico acquired a PV portfolio from Cypress Creek Renewables at January 2019 covering five projects with a cumulative capacity of 580MW capacity. Wagyu is the fourth largest of these projects to achieve financial closure, after the Palmetto Plains and Huntley projects in South Carolina and Crooked Run in North Carolina.
Renewable Energy Systems (RES) is already working on the Wagyu project as EPC contractor and project completion is expected in Q3 2020. Cypress Creek will subsequently supply O&M services.
Oliver Alexander, head of USA in Cubico, said: ”Wagyu is a great addition to Cubico’s USA business, representing a variety of firsts for the company including its very first corporate PPA and original bodily hedge, whilst also establishing long-term relationships with offtake counterparties Starbucks and BP. We are very happy to be working with RES on new construction projects again and look forward to continuing to work with Cypress Creek on new job investments to 2020 and beyond.”
Project finance debt was provided by HSBC, Nord LB and Rabobank and taxation equity was provided by US Bank.
Cubico is endorsed by two of Canada’s biggest pension funds and has a worldwide portfolio in ten states with an installed gross capacity of roughly 3.1GW. It’s had recent project advancement in Mexico, Colombia and South Carolina.
Anyway, this partnership between PSP, OTPP and Cubico has been very strong and benefited everyone.
It proves that Canadian pension funds can work together to nurture a strong and growing sustainable investments platform and realize on their investment after many years of success.
The deal has not officially been announced yet but if it's announced and closes before year-end or in Q1 2024, both PSP and OTPP will get a boost in their respective returns (OTPP's fiscal year ends at the end of the calendar year, PSP's ends at the end of March 2024).
Below, an older (2021) General Counselling podcast featuring Olga Garcia, General Counsel and Head of Corporate Affairs at Cubico Sustainable Investments, and Sam Newhouse, Partner at Latham & Watkins.