Deal in Focus: Terra Firma sells Infinis wind assets to JP Morgan

Terra Firma's recent sale of Infinis's onshore wind assets to JP Morgan came seven months after the vendor sold the group's landfill gas division to 3i in a £185m deal. It also came just a year and a half after the GP delisted the group – comprising both landfill gas and onshore wind divisions – in a £555m take-private, having originally floated it in 2013 in a £780m IPO.

"Unfortunately [following the IPO], the Conservative party's policy towards renewable energy started to change," says Guy Hands, chairperson and chief investment officer at Terra Firma. "And by late 2015, it was quite clear that the stock market was undervaluing the business as a result of the concerns regarding those policies. We felt the best thing for the shareholders, management and our fund investors was to take Infinis private." It was a decision that appears to have been vindicated, given another source close to the situation told unquote" the subsequent divestment of Infinis divisions generated an 11x multiple and an IRR of 31%, despite having spun out from its parent group 11 years ago.

Terra Firma first invested in Infinis in 2003, when it acquired former parent business Waste Recycling Group (WRG) for €836m. It is understood the final exit in May 2017 brought the returns generated from the initial WRG investment to more than £2.1bn, representing an IRR of 35%.

We conducted the sales process in a period of strong political headwinds. We were in a post-Brexit environment, with many of the company's assets based in Scotland and people wondering what Scotland would do post-Brexit. The subsidies the sector relies on are also all entangled with the EU, so the challenge we faced in selling the company at the right valuation was considerable" – Andrew Geczy, Terra Firma

Having acquired WRG in 2003, Terra Firma split the company into two subsidiaries: waste disposal and renewable energy. It then invested in the €357m acquisition of the UK landfill company of Shanks shortly afterwards, before merging the two businesses. Six months later, the GP refinanced the consolidated group before eventually divesting its waste disposal division for a figure understood to be in the region of £1.1bn to Fomento de Construcciones y Contratas in 2006.

Following the sale of the waste disposal division, the GP retained the renewable energy division, renamed it Infinis, and brought in a new management team, specifically a new CEO, CFO, commercial director and head of wind power development. In addition to increasing its number of production sites, the business invested in a centralised control centre to improve operating efficiency and undertook a recruitment drive.

"We did what we felt we could have done with WRG very quickly," says Hands. "We put two businesses together, brought the management team up to top-in-class standard, and took all our equity off the table. So within three years we had received all our money back and formed the basis for Infinis."

Refinancing ad Infinis-itum
In 2009, Infinis acquired competitor Novera Energy in a public-to-private M&A transaction valued at £112m. Shortly afterwards, Novera completed a £275m bond issue in order to support further bolt-on acquisitions. The business then undertook further refinancings in 2013, including the issuance of £350m worth of senior notes, reducing the overall cost of its debt by 200 basis points in preparation for its £780m IPO in November that year. Terra Firma sold 30% of its outstanding shares in the company via the flotation before eventually delisting the business once more in October 2015.

Terra Firma CEO Andrew Geczy took on the responsibility of managing and ultimately divesting the investment after joining the firm in July 2016. "We conducted the sales process in a period of strong political headwinds," says Geczy. "We were in a post-Brexit environment, with many of the company's assets based in Scotland and people wondering what Scotland would do post-Brexit.

"The subsidies the sector relies on are also all entangled with the EU, so the challenge we faced in selling the company at the right valuation was considerable. Buyer appetite was cut in half specifically because of the uncertainty caused by Brexit. It was ultimately the operational capabilities we had embedded into Infinis that led to us finding two buyers who were very excited by the proposition."

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