Brookfield Renewable (BEPC +0.00%)(BEP 1.75%) is no stranger to making acquisitions. The leading global renewable energy producer has made several over the past couple of years. Those deals have the company on track to generate meaningful earnings growth again in 2024.
The company just made another game-changing move. It's buying French renewable energy developer Neoen in a $6.5 billion deal. The two-phased transaction will enhance the company's already robust long-term growth outlook.
NYSE: BEPC
Key Data Points
Adding an accelerant
Brookfield Renewable and some partners (its parent, Brookfield Asset Management, and Singapore's state investment company Temasek) recently struck a deal to acquire a majority stake in Neoen from some of its largest shareholders. The company will initially purchase about a 53% interest in the French renewable energy developer in a deal valuing the company at $6.5 billion. That's a 27% premium to its trading price before rumors surfaced that Brookfield sought to buy the company in May.
Brookfield Renewable expects to close that majority investment by the fourth quarter. It then intends to launch a tender offer early next year to buy out the remaining shares at that same valuation. That would give Brookfield and its partners full control over Neoen.
Brookfield is buying Neoen to bolster its exposure to renewables and battery storage technology and accelerate that company's development pipeline. Neoen currently has 8.3 gigawatts (GW) of assets in operation or under construction. In addition, it has 20 GW of advanced-stage development projects across Australia, France, and the Nordics.
Adding Neoen would significantly enhance Brookfield's renewable energy portfolio. The company has about 34 GW of operating assets and a massive 157 GW development pipeline. Buying Neoen will enable Brookfield to scale its portfolio and accelerate its development pipeline.
Brookfield is seeing increasing opportunities to develop new renewable energy projects. For example, it recently agreed to build over 10.5 GW of renewable projects for Microsoft, the largest-ever corporate power-supply deal. This transaction could enhance its ability to meet Microsoft's needs and the growing power requirements of other companies.
The acquisition accelerator
Brookfield Renewable has tremendous built-in growth drivers. The company believes it can deliver 4% to 7% annual funds from operations (FFO) per-share growth from its existing portfolio through 2028 from a combination of inflation-indexed rate increases and margin-enhancement activities, like providing ancillary services to existing customers.
Meanwhile, the company's vast development pipeline should enable it to add another 3% to 5% to its FFO per share each year as new projects enter service. That 7% to 12% annual organic growth rate easily supports the company's plan to increase its dividend by 5% to 9% annually.
Brookfield believes accretive acquisitions will enhance its already strong organic growth rate. It expects to deploy at least $7 billion of its own balance-sheet capital over the next five years into new growth opportunities.
It will fund these deals by recycling capital and leveraging its financial partners and global transition fund strategy. The company believes strategic acquisitions should drive its annual FFO per-share growth rate above 10%.
Neoen is the latest in a string of deals by Brookfield as it seeks to enhance its ability to capitalize on the renewable energy megatrend. The company agreed to deploy a record $9 billion of capital last year ($2 billion of which it will fund on its balance sheet) across a series of strategic transactions. Notable deals include increasing its stake in renewable energy developer X-Elio, buying Duke Energy's commercial renewables business, and investing in nuclear servicing company Westinghouse.
Those deals put the company on track to deliver 10%+ FFO per-share growth this year. Meanwhile, securing Neoen will provide Brookfield with lots of momentum heading into 2025. It enhances the company's ability to deliver double-digit FFO per-share growth next year and in the future. It can leverage its scale and customer base to accelerate Neoen's development-project pipeline to continue growing briskly in the coming years.
Enhancing the investment thesis
Brookfield Renewable has an exceptional track record of growing shareholder value over the years. The company has increased its FFO share at a 12% compound annual rate since 2016 and grown its dividend at a 6% compound annual rate over the last two decades.
The company already had plenty of power to continue growing its earnings and dividend at brisk rates. Acquiring Neoen will enhance its ability to grow in the future. It increases Brookfield's appeal as one of the best stocks to buy to cash in on the renewable energy megatrend.
