Investment firm snares major stake in Windlab – could a takeover offer follow?

Investment firm Federation Asset Managers have acquired a major stake in wind farm developer and operator Windlab, leading to speculation that Windlab may become the target of a takeover offer as the company works through a challenging Australian market for new wind projects.

The 18.4% stake in Windlab was sold by Innovation Capital, which had been one of the early backers of Windlab having facilitated investments of $5 million in early stage capital back in 2007.

Roger Price, who facilitated the 2007 investment round in 2007 on behalf of Innovation Capital subsequently joined the board of Windlab, and later become the wind company’s Chairman and Chief Executive Officer, positions he continues to hold.

The accompanying statement to the ASX revels the shares were sold via an off-market trade at a slight discount to the current share price, selling at 80 cents per share, delivering a return of around $10 million for the substantial stake.

The price is, however, a long way off the share price Windlab achieved when it first listed on the ASX back in August 2017, when the company undertook an initial public offering at $1.80 per share. Windlab shares closed at 83 cents at the end of trading on Tuesday.

Significantly, the share sale deed between Innovation Capital and Federation Asset Management could require Federation to top up the price paid of the shares in the event that a take offer for Windlab is made within the next six months.

Under the share sale deed, if a takeover offer for Windlab is forthcoming, Federation will be required to hand over half of the difference between the takeover offer price, and the price paid by Federation for its 18.4% stake to Innovation Capital.

It is a clear sign that Innovation Capital thinks that there is at least some chance of a takeover offer for Windlab  in the near future and raises speculation around whether Federation will make a larger play for Windlab, potentially acquiring the company outright and potentially taking the company private.

Windlab has achieved the successful completion of a total of almost 1,100MW of wind generation projects, with an additional 7,750MW of potential projects under development. With the company currently trading with a market capitalisation of less than $60 million, some investors may see the company as representing good value for money.

Since listing on the share market, Windlab has encountered headwinds that have stymied the company’s growth. Faced with a difficult market for new wind projects, delays to the completion of some of Windlab’s project development pipeline, including the Kennedy and Lakeland projects, two of the company’s flagship projects.

The achievement of the 2020 Renewable Energy Target, grid connection issues, the significant down-rating of several renewable energy project’s marginal loss factors and ongoing uncertainty over federal and state energy policy have all combined to make some investors and project developers nervous about undertaking new projects.

Federation’s investment team includes some notable alumni of Macquarie Capital, including Federation’s CEO Cameron Brownjohn, along with the manager of Federation’s renewable energy portfolio Stephen Panizza, who has previously held positions at both Macquarie Capital and the Clean Energy Finance Corporation.

In August, the company announced that it would undertake a strategic review of the company’s operations, seeking opportunities to generate additional value for shareholders and to identify potential new investment partners.

Windlab first emerged as a spin-off from the CSIRO, with the company being built around world leading wind forecasting and modelling software that had been developed at the scientific research institution.

The modelling software allows for the optimisation of wind turbine positioning, maximising the energy yields from wind farms and delivering projects with some of the highest capacity factors achieved in Australia.

The company has expanded its project development activities beyond Australia, extending its portfolio to projects in North America and South Africa.

Windlab also currently manages more than $1 billion worth of projects on behalf of third-party owners, using its operational expertise to provide asset management services to the wider energy market.

Windlab has been able to leverage this technology to grow the company to the point that it has begun to undertake the full development of wind generation projects, and has been able to offer its services as an efficient and effective operator of wind farms to offer services to third-parties as a generation asset manager.

Federation Asset Management has a major focus on renewable energy investments, as well as investments in the property and health sectors. The firm has previously made significant investments in RateSetter, a peer-to-peer lending service that has developed dedicated loan services to support households install rooftop solar and energy storage systems on their homes.

Windlab has been contacted for comment.