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Atlantis Resources to spearhead waste and hydro acquisitions as SIMEC Atlantis Energy

The following article by Patrick Harris was published on Mergermarket on the 7th Feb 2018:

Atlantis Resources to spearhead waste and hydro acquisitions as SIMEC Atlantis Energy

• GFG Alliance asset pipeline to provide stable yield growth
• Acquisitions likely across the UK, France and Australia
• Mainboard transition key target

Atlantis Resources [LON:ARL], a UK-based renewable power developer, is in acquisition talks as it looks to ramp up its power generation portfolio amid its rebranding as SIMEC Atlantis Energy, CEO Tim Cornelius said.

Last December, Atlantis announced an acquisition and reverse takeover deal with SIMEC, part of the GFG Alliance of companies controlled by the Gupta family, which resulted in its ongoing suspension from AIM, and will see Atlantis renamed SIMEC Atlantis Energy upon completion.

In the transaction, Atlantis Resources is to acquire SIMEC Uskmouth Power (SUP) from SIMEC, in consideration for new shares in Atlantis representing 49.99%, and Atlantis will have a right of first offer agreement to acquire a pipeline of renewable power generation assets owned by the GFG Alliance.

The company is now a “different animal, with different challenges, and different opportunities” since the last report by this new service last year, Cornelius said. Atlantis will be a new listco, with a new sustainable long-term power purchase agreement (PPA) in place, and in the market to acquire, he added. It is aiming to reach the midcap, mainboard listed, GBP 1bn to GBP 1.5bn market capitalisation space, he said, with the market currently dominated by either much smaller power generation companies focused on technology, or larger yieldco-type aggregators.

It wants to be a diversified group with a mix of power generation assets, he said, and to develop this audacious project with SIMEC and the GFG Alliance. Atlantis now has an internal customer in SIMEC, with steel plants and mills across the UK, and at least a thousand megawatts capacity, he said. The company is keen to hear from advisors pitching advice and investment ideas, he said, but noted that it is currently very well served by its broker, Cantor Fitzgerald, and was well advised in the latest SIMEC deal by Evercore.

“My goal is to acquire renewable and low-cost assets into the group to fuel that beast,” Cornelius said.

Deal potential

These assets should be in close proximity to Atlantis’ internal customer, or have long-term PPAs in place, he said. Atlantis is focused on waste-to-energy, such as SUP and hydro, he said. Hydro targets would include mini-hydro, pumped-storage hydro and tidal range, such as its flagship Meygen project in Scotland, he said. The company is very interested in a mini-hydro portfolio, he said, and is looking at two such transactions, one in Wales and one in Scotland.

It is also very interested in pumped storage, and is in live deal conversations, he said. There are a number of such projects in Queensland Australia, he noted, where miners have transformed old pits into upper and lower reservoirs. Another potential market for hydro is France, he said, where it is also in acquisition discussions on a tidal range project.

In the waste-to-energy space, Atlantis is looking to source more waste collection, to allow more power generation, and the ability to convert coal-fired plants to waste, he said. Atlantis wants to acquire end-of-life coal fired plants for conversion, he said, again, especially if in proximity to the end user of the power.

In all these transactions, Atlantis would consider different types of deals, including acquisitions of both the assets and the companies that own them, he said. Sometimes, company acquisitions can be preferred if the target management team comes with the deal, he added.

The target value range is broad, he said, with Atlantis looking at opportunities in the market for less than GBP 10m equity value, and others in excess of GBP 400m to GBP 500m, he said. Generally, it is looking at traditional transaction structures, he said, but bespoke for every deal.

Within its internal pipeline of targets, which would be acquired from the GFG Alliance, Atlantis would raise an equity portion in the capital markets to acquire the offered asset, he said. Outside of the GFG Alliance pipeline, Atlantis would structure each deal differently depending on the situation, he said. The company does not have the same financial profile as a private equity house with short term return requirements, he noted. Instead, Atlantis is looking for yield, focused on long-term, sustainable, well prices power, he said.

Riding the waves

Success at the company’s Meygen tidal project is one of the key reasons for the deal with the GFG Alliance and SIMEC, Cornelius said. Cornelius was introduced to Sanjeev Gupta, the executive chairman of the GFG Alliance, last year, he said.

Meygen is a unique project and has required a difficult series of transactions, Cornelius said. The GFG Alliance and SIMEC took the view that if Atlantis is able to succeed on that project – as it has done – then there is much that it could achieve with access to more firepower, a larger balance sheet and an industrial customer.

At that time, SIMEC had just started on a roll of traditional acquisitions of steel and aluminium assets, he said, and every time it made an acquisition, it picked up an adjacent suite of power generation to reluctantly operate.

SIMEC was looking to consolidate power generation assets into a listco which could be managed more effectively, Cornelius said, and looked at ways to consolidate its relationship with Atlantis. This resulted in the agreement to acquire SIMEC Uskmouth, and in a separate deal, the larger reverse takeover, he said. The concept is that SIMEC will continue to acquire new portfolio assets that it can pass to Atlantis. This is stable power, at a stable price, and takes out the volatility of open power markets, he said.

In December the company had a market cap of around GBP 44.15m, and is aiming for readmission in 1H18, as per the company announcement.