Pattern Energy, which ranks among North America’s leading wind operators, announced Monday it has agreed to be taken private by the Canada Pension Plan Investment Board, amid ongoing consolidation in the U.S. renewables development sector.

Rumors about a takeover of Pattern, which has a portfolio of 28 renewables projects totaling 4.4 gigawatts of capacity, have circulated in the market for the past several months.

CPPIB will pay $26.75 per share for Pattern Energy, valuing the company at around $2.6 billion, or $6.1 billion including its debt. That makes it one of the biggest M&A deals announced this year in U.S. renewables.

The acquisition is expected to close in the second quarter of 2020 but remains subject to shareholder approval.

Fusing renewables development with operation

In the event the deal goes through, CPPIB and longtime Pattern-backer Riverstone Holdings plan to combine Pattern Energy and its privately owned affiliate Pattern Development into a single company under common ownership.

Pattern was launched on the public markets six years ago as a "yieldco," focused on the low-risk business of operating wind farms. In recent years, however, Pattern Energy has decided to move its shareholders into the higher-risk, higher-margin business of developing renewables projects.

To do that, publicly listed Pattern Energy has been investing in privately held Pattern Development, from which it typically buys completed wind farms.

Pattern went public in 2013 at $22 per share, near the beginning of a wave of initial public offerings by U.S. yieldcos. Since then, however, it has struggled to win over investors, despite its steady if unspectacular growth and generous dividends.

The yieldco sector, once seen by many as the future of renewables companies on the public markets, has been in something of a retreat in recent years. Several prominent U.S. yieldcos have been acquired and taken private amid flagging investor interest, including NRG Yield (now part of Clearway Energy) and the joint SunPower and First Solar vehicle 8point3 Energy Partners (absorbed into Capital Dynamics).

If the deal with CPPIB goes through, Pattern, too, will become a privately-owned company and delisted from the stock market.

The Canadian offensive

After falling below $18 per share in early 2018, Pattern’s stock price trended upward over the past 18 months. It surged in August on a press report that TerraForm Power — once controlled by SunEdison, now by Canada’s Brookfield Asset Management — was considering an acquisition.

In the end, Pattern’s board of directors accepted CPPIB’s offer, which represents a nearly 15 percent premium over the company's closing stock price on August 9, the day before the TerraForm Power rumor was published.

Pattern’s current management team, led by CEO Mike Garland, would continue to lead the company.

“Over the years, Pattern Energy has been able to provide shareholders with a consistent dividend, and now our shareholders can realize the value embedded in the company,” Garland said in a press statement.

“We believe the proposed transaction reflects the strength of the platform we have built,” Garland said.

U.S. renewables developers and their pipelines of projects have been in high demand from institutional investors like infrastructure funds and insurance groups. There are not many independent players left in the U.S. wind market, and the solar sector has also seen consolidation. 

This year has seen the acquisitions of developers Tradewind Energy by Enel Green Power and Geronimo Energy by National Grid. Denmark's Ørsted bought wind-centric Lincoln Clean Energy and solar developer Coronal Energy.

The proposed acquisition of Pattern underscores the aggressive and ongoing push of Canada’s pension funds into the renewables market, particularly in the U.S. but also abroad. To some degree, the push reflects a lack of opportunities in the stalled-out Canadian renewables market.

In addition to Brookfield’s acquisition of SunEdison’s TerraForm yieldcos, Canadian institutional investor Caisse de Dépôt et Placement du Québec last year became the largest shareholder in Invenergy’s renewables business, while the Ontario Municipal Employees Retirement System acquired Leeward Renewable Energy.

In 2017, the Alberta Investment Management Corp. acquired U.S. solar developer sPower alongside AES Corp., and this year AIMCo followed up by acquiring Spanish renewables developer Eolia.

Beyond its success in the U.S. onshore wind market, Pattern made a big splash during the takeoff of the Canadian wind market earlier this decade. More recently, it has homed in on Japan as its next international growth market.