Has Eddie O’Connor underestimated the value of his €1bn baby?

‘Share price jump implies that market believes that Aker Horizons has paid well below what it thinks Mainstream is worth’

Eddie O’Connor, founder of Mainstream Renewable Power: The Aker deal values his 55 per cent stake at up to €550 million – a return of about 17 times. Photograph: Frank Miller

Eddie O’Connor, founder of Mainstream Renewable Power: The Aker deal values his 55 per cent stake at up to €550 million – a return of about 17 times. Photograph: Frank Miller

 

Kjell Inge Roekke, one of Norway’s richest men, clearly likes to hedge his bets. It emerged on Monday that the multibillionaire’s (we’re talking dollars and euros, not krone) fishing-to-engineering holding company Aker ASA, had pulled out of the equivalent of a €300 million deal to buy a Bergen-based wind farm developer with projects in Ukraine and China.

Less than 24 hours later, Aker’s fledgling green energy and technology unit, Aker Horizons, revealed it had landed a bigger catch, with its planned purchase of Roscommon native Eddie O’Connor’s Mainstream Renewable Power for up to €1 billion.

The deal will involve an initial payment of €900 million, followed as much as €100 million in 2023, subject to certain performance conditions, for a company with interests across Latin America, Africa and Asia-Pacific and 1.2 gigawatts (GW) of wind and solar projects under construction.

In addition, Mainstream aims to have the paperwork and funding tied up on a further 5.5 GW of power projects by 2023. For context, that’s slightly higher than the current peak-energy demand in the Republic.

The takeover deal, subject to regulatory approvals, represents up to a 550 per return for the original shareholders in Mainstream, including a group of almost 600 Irish high-net-worth individuals that have had a nail-biting ride at times.

These followed O’Connor, the former Bord na Móna boss, into his new venture in 2008 on the back of the value that had just been created from the €2 billion-plus sale of the Airtricity wind energy firm he set up a decade earlier. O’Connor pumped three-quarters of his Airtricity cheque into Mainstream.

The Aker deal values his 55 per cent stake at up to €550 million – a return of about 17 times. But for a long time, it looked as O’Connor and his backers would get little or nothing back on their punt, as the fledgling company grappled with the financial crisis, which wiped out any value that was being put on pipeline renewable energy projects.

This forced the company to focus on developing advanced projects on its books. And fast. All too often, it ended up selling out at an early stage just to get money in to keep the show on the road.

A turning point came in early 2018 when Mainstream raised more than €600 million selling a wind farm project off the Scottish coast to French utilities giant Électricité de France.

Challenge

It represented a multiple of an abortive €100 million deal that had been struck two years earlier but – fortunately in retrospect – had fallen through as the project was held up by a legal challenge mounted by a bird protection charity.

Mainstream offered shareholders access to a temporary grey market to trade out if they wanted to in late 2018 at a price of €9 a share – or three times what they had put in a decade earlier.

Only 10 per cent of the stock changed hands at the time, according to sources, as Mainstream dangled the prospect of greater returns to those willing to hang on a bit longer.

Mainstream’s move in late 2019 to hire investment bank Rothschild to find an “equity partner” prompted speculation of an outright takeover, with Big Oil seen as the most likely acquirer as the likes of BP, Shell and Chevron seek to pivot from black gold to green.

However, Aker, a keen player in the North Sea oil and gas rush in the 1960s and 1970s, which has embarked on its own green journey in recent times, came in with an interesting pitch.

Investors in Mainstream are being offered the chance to reinvest some of their money in a 25 per cent stake in the Irish company as part of the takeover – with an initial public offering (IPO) of the business planned within the next two to three years. (A number of Aker units have separate listings.)

“I think our investors will be very happy with the outcome,” said O’Connor. “The majority of them here in Ireland have stuck with us faithfully for the past 13 years and they stand to make well over five times their investment.”

Investors mulling taking on a continued interest might want to look at Aker ASA’s share price. The stock has jumped as much as 21 per cent since the deal was announced on Tuesday.

Has O’Connor, for once, underestimated the value of what he has created?

Investments “The share price jump implies that the market believes that Aker Horizons has paid well below what it thinks Mainstream is worth,” according to Peter Hermanrud, chief strategist with investment bank SpareBank 1 Markets in Oslo.

Roekke, worth $5.5 billion (€4.5 billion), according to Forbes, and who made his initial fortune in the fishing industry in Alaska before taking a controlling stake in Aker 25 years ago, knows a good haul. “He has a very good nose for doing investments and financial markets,” said Hermanrud.

Anders Holte, an analyst with Kepler Chevreux in Norway, has hiked his share price target for Aker in light of the Mainstream deal to a level that implies 35 per cent upside from where the stock was trading before the takeover was announced.

“Aker’s acquisition of Mainstream is highly value accretive as we see it,” he said. But Aker is bringing a large balance sheet to the table to allow Mainstream continue to develop and, more importantly, hold onto assets that will provide a regular income stream in the future. This is the real game changer and would make the company a decent IPO prospect in the future.

Negotiating a deal that allows long-standing investors – including O’Connor, who will remain on as chairman – to roll some of the proceeds into an ongoing 25 per cent interest shares the potential upside.

“Aker are investing in the Mainstream brand and our people, and they want us to continue doing what we’re good at, but on a much more bigger scale than we’ve ever done before, and faster,” said O’Connor (73). “We’re really putting the foot down on the accelerator.”

Who’ll be willing to stay on board?

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