With INE taken out, where will green capital go next?
This morning, Innergex (INE) announced it had entered into an agreement to be acquired by Quebec’s largest pension fund, CDPQ, in a deal valuing the company at ~$10B, or 11.7x the mid-point of INE’s 2025 EBITDA guidance.
The deal price of $13.75 per share represents a 58% premium over its last close, but still a sizeable haircut (>25%) to prices seen in 2021/22. Leading up to the deal, we highlighted M&A in the industry could continue, with valuations at historically low levels.
With Innergex joining a string of recent take-private transactions in the industry, where should capital from the deal flow next?
The easy pick: Boralex (BLX)
Structurally, BLX looks the most like INE, with similar geographic exposure and a wind-heavy portfolio. It’s not surprising that it got bid up more than peers on the transaction news (+7.5%).
Source: Company reports
In recent years Boralex has led the peer group, resulting in less valuation compression. While it’s the straightforward pick for INE shareholders looking for something familiar, there’s probably less upside potential here.
The interesting pick: Northland Power (NPI)
NPI was up ~6% on the day and in our view is the more interesting way to play a renewed interest in renewable energy stocks. The company’s portfolio looks nothing like INE’s though, with a global fleet spanning multiple technologies.
Source: Company reports
Shares have been cut in half over the past few years as cost inflation, geopolitical concerns around its asset in Taiwan, and management turnover has driven its valuation to historic lows.
So what could the catalyst be here?
Unlike some of its peers, management isn’t afraid of natural gas, which already represents part of its portfolio today.
I think if you had noticed what we were saying a few years ago, we would have been saying that we were not interested in doing any more natural gas facilities. The world has changed.
So we want to be environmentally wise about what we do, but we think there’s a huge opportunity in natural gas, and we are pursuing it.
Any developments on this front could get the stock moving, alongside potential non-core asset sales and continued development progress on its two large offshore wind projects (Baltic Power and Hai Long).
The under the radar pick: Polaris (PIF)
PIF shares rose 2% following the transaction announcement, well below the peer group bounce given the company’s smaller size prevents larger funds from buying it. For this reason combined with its heavy LatAm exposure, PIF has traded at a wide and persistent discount to peers.
Fundamentally though, the business is sound. With growing cash flow, extremely low leverage relative to industry norms, and roughly US$4 per share in cash (~45% of the current share price), PIF has a lot of room to invest in growth.
Growth should come organically and through M&A, as the company is progressing a pipeline of high return opportunities on both fronts.
Given that we completed the bond offering in Q4 last year, we actually have some dry powder in terms of capital from that to put to work. And so I think that combination bodes well for, call it, something in the back half of the year on the M&A side to complement what we’re looking at on the organic side.
Should it continue to execute, we wouldn’t be surprised to see private equity circling this company as a potential tack-on acquisition to a larger, more diversified renewable platform that can easily digest the concentration risk PIF has.
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