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In the latest episode of the Resilience podcast, colleague and host Shellka Arora-Cox sits down with Kevin Yaich, head of M&A at Qcells USA, for a discussion of the current solar M&A landscape.
(Editor’s note: The following transcript has been edited for clarity.)
From the heart of India, resilience has shaped who I am. Now, I’m sharing the insights of leaders and innovators who are driven by the same strength. Welcome to Resilience, where we explore how resilience is driving transformation in the energy sector.
Welcome to Resilience. The vodcast where we navigate the twists and turns in the energy sector. I’m your host, Shellka Arora-Cox, a partner at Pillsbury Winthrop Shaw Pittman. Joining me today is Kevin Yaich, head of M&A at Qcells USA. Kevin and I will be diving into the world of the solar M&A market. Whether you are a buyer, a seller or just curious about the market, this is one conversation you won’t want to miss.
Kevin, welcome.
Kevin Yaich: Thank you. Thank you for having me!
Arora-Cox: Before we dive into the nitty gritty of the M&A market, can you shed some light on your journey? How did you end up as head of M&A at Qcells?
Yaich: So, as you can hear with my accent, I come from France. When I finished business school, I started as an investment banker for J.P. Morgan, living the dream. I moved to New York. After a couple of years, I did some private equity, and eventually went to work for NextEra Energy Resources in different functions—corporate development, M&A, on the oil and gas side, and on the renewables side. After that, I joined Shikun & Binui, the largest Israeli IPP, building their business from scratch in the U.S. We went public. After that, I decided to take a different journey. I joined Qcells as head of M& A, going back to my core skill set—a pure transactional skill set. So very excited about this new journey and happy to talk a little bit about that and share my experience.
Arora-Cox: Before we drill into the market, let’s set the stage for our listeners about the macro picture. Can you share what you’re seeing in the market today in the solar M& A space and where we are? Are we in a sunny phase or is it a cloudy world out there when it comes to M&A?
Yaich: When you come to Romania, it’s sunny or cloudy, depending on which side of the table you are, right? Whether you’re a buyer or a seller. But right now, there is a little bit of uncertainty from a regulatory standpoint. And the elections are coming. Definitely a buyer’s market, right?
We see the valuation going down a little bit. There’s definitely some opportunity, but valuations are not like 30 percent below than what it was a couple of years ago—it’s just following the trend of higher cost of capital on the backside and cost of equity going up, as well. There’s always a lag, and you’re seeing this lag right now.
We expect to see the cost of equity continue to rise following this lag. Interest rates are probably going to go down in the next six months, a year, two years. I expect cost of equity to follow in the next 12 months, and valuation should go back up.
Again, supply and demand, higher interconnection cost and such have pushed a lot of developers and independent power producers (IPPs) to restructure the pipeline and to sell a lot of them. So you have a little bit more product in the market. And again, it’s a supply and demand game, so that adjusts the valuation down, so that’s what we’re seeing in the market.
Arora-Cox: That touches on where I was going next, which is really what is driving the market at the moment. Is it simply finding the strategy matching the perfect asset or is there more at play which is driving the market at the moment? Could you unpack?
Yaich: I would say there is a different dynamic in the market, for sure. There is a little bit of restructuring of the pipeline from smaller developers that have to face higher general network access (GNA) and for the bigger IPPs, as well, that have to sell down some of their pipeline and reconcentrate to a couple of key markets.
On the other hand, you still have some new entrants—some very large international IPPs, recently acquired by large infrastructure funds, that need to enter the U.S. and have very aggressive goals. They are new entrants, so they have to be very aggressive on the M& A side.
So you have those two forces—a new entrant on the one hand and a concentration on the other hand for some of the historical players, and those two forces ultimately make it a buyer’s market. But, again, you don’t see valuation going down significantly.
Arora-Cox: And is the security of the supply chain playing into the mix? Are you seeing that in the market?
Yaich: Yes. The number one dynamic in our market is timing, right? So when you buy a renewable energy project, especially later stage, your timing is driven by different types of docs, right? You have your generator interconnection agreement (GIA), your interconnection documents. You have potentially your power purchase agreement (PPA), and you have your long lead equipment—equipment on the asset side as well as on the interconnection side. If those documents are not aligned, then you have an issue. And I think that’s where you see the opportunity in the market for aggressive players that took a hedge on equipment or have the ability to renegotiate—and the skill to renegotiate—those documents, GIA or PPA.
The opportunity in the market, you have a lot of late-mid-stage projects that are high quality assets. But one of those elements is not [in play]. I think the opportunity arises either with long lead equipment that has been bought ahead of time or the ability to renegotiate offtake, renegotiate GIA—those type of things.
The opportunities and the challenges lie in being able to have the perfect match and managing through that because the cost of the project can go up very quickly on the GIA side or on the PPA side, or if you don’t manage to secure equipment.
Arora-Cox: What you’re alluding to is risk and reward—there are opportunities, but you have to come in at the right time.
Yaich: And knowledge. Understanding what needs to be done on some of those contracts. Understanding how hard it is to build up a project, how long it’s going to take. In some states in the northern part of the U.S., you cannot build in the winter, so if you don’t account for that, then your entire project is out of sync.
Arora-Cox: You touched on some of the documents and talking about documentation. What are you seeing on the deal structuring side? Are buyers and sellers working with tried and tested documents or are there more inventive ways that people are navigating these transactions?
Yaich: The most common doc is a simple Membership Interest Purchase Agreement (MIPA) with milestone payment with the seller, all weighted more toward notice to proceed (NTP) or commercial operation date (COD). That type of structure has been governing agreements over the last couple of years, but you have different flavors now.
There is willingness from the developer and the buyer, or the seller and the buyer, to share some of the risks, so you see some co-marketing agreements where the buyer doesn’t take offtake risk, right? Where they will acquire the project only if the offtake is executed or at least shortlisted. You’re also going to see a willingness to share the interconnection risk.
You’ll see a smaller developer develop a project and have a bigger player back up the security or provide the security for interconnection. On the opposite side, you see some other types of acquirers that are not willing to take early interconnection risk. They would structure some framework agreement and acquire an asset, sign on a transaction and close only if the upgrades or the (safety instrumented system) SIS come below or above a certain level. So you have different ways. I think the players in the industry have been creative based on the risk that the buyer and seller are ready to share or not share.
What’s exciting for us is trying to solve for a problem, and, at least in my teams, we always try to be fair. A lot of buyers try to take advantage of an uphill position, but I think the wise thing to do is to stick to your word. You have a deal, you shake hands, you have a term sheet. Even if at a point in the transaction, you find yourself in uphill position, keep your word, keep the deal. Don’t try to grab a couple more cents, a couple more reps. Ultimately, it’s all about your word, your values, your relationships, your professional ethics.
Arora-Cox: It’s not just about one transaction. Like you mentioned, it’s about creating relations and building business over time.
Yaich: Exactly. Like you and I, for example. How many transactions have we worked together?
Arora-Cox: Yes, I was thinking about that. There’s no M&A deal without lots of late nights and coffees, and both of us are aware of that.
You talked about valuation, and I want to talk a little bit more about that. You said it’s a buyer’s market at the moment and the valuations are not that far below where you would expect them to be. Is there a kind of tug of war that’s going on between sellers and buyers at the moment, or are buyers and sellers seeing eye to eye on what is fair determination?
Yaich: Ultimately valuation is driven by what returns the market is underwriting projects, by what assumptions are driving those returns in different directions based on how bullish or bearish you are on merchant curve or other type of assumptions.
But there is a consensus on valuation in most of the market based on the stage of the asset. I think the situation of the buyer or the seller will drive the valuation plus or minus a couple of percent in deviation of the current market.
I’ll give you two examples. Imagine you are a small developer in urgent need of recycling capital. You’re going to be under pressure—in a distressed situation—so you will be ready to take a lower price, right? If, instead, you are a buyer—a large, multibillion-dollar company—and you need to meet your earning goals, whether it is in megawatts or a certain amount of earnings you have to generate in a given year, you will be ready to pay a premium to meet those goals.
And those rationales are not specific to this year or this time—it has always been the case. But putting that aside, when I say it’s a buyer market it’s because the eagerness to acquire renewable projects is outweighed by some of the risk in the market and the cost to do business. That dynamic makes it a little bit more favorable buyer market, with just more projects coming up for sale.
Arora-Cox: Okay. Let’s shift gears a little bit. The energy sector is changing, evolving at speed sometimes that we can’t keep up with, and whether it’s just solar technology we’re talking about, or AI that we’re talking about, how do you see technology shaping M&A? Is it adding complexity to transactions or is it adding value to projects?
Yaich: I don’t think AI, from a technical standpoint, is changing my job or our job much day to day. You have some algorithms that allow you to search for documents very quickly. That makes our life easier. I think that exists in the legal side, as well. It’s a little bit more democratized across subject matter expert groups, right? But I think the immediate impact of AI is its added load as an industry in general, right? You have more demand of power due to more computers crunching data. And because there is a strong push for renewables, indirectly a demand for renewables. Now, with the penetration of hyperscaling on the demand side, it disrupts the market because of the high demand. The grid is congested and not ready for it. So we are facing those challenges, and as an industry we have to find solutions, to craft products that are more than ever adapted to the needs of the buyer.
That is definitely something that impacts the markets, making it even more interesting as all the teams have to work hand in hand—even more than before. The developer must be able to site the project in locations that are more and more challenging.
Especially in the Platinum Group Metals (PGMs) market where—this is not flat land. This is not Arizona or the central U.S. It is hilly. It is very wet—you have to build water retention basins and all those type of things, right? Building projects close to the load is becoming more and more challenging, technologically.
That means your EPC team must work very well with your development team to anticipate the potential risk of siting a project, and your origination team must identify your potential buyer of power and make sure that the shape of the power and the battery capacity, for example, match their true need. Because data centers have a specific shape that is not aligned with the production profile of a wind turbine or a solar plant. So I think there is a lot of creativity, a lot of work that has been done by all the team to be able to adapt to this new demand.
Arora-Cox: That is a good segue into the next question. If you had a crystal ball and were to look into it, what trends do you think will shape the M&A market over the next few years?
Yaich: I was talking with some colleagues of mine about this. Yes, this is a buyer’s market, we have a concentration right now. Is it a phase? From a pure development landscape perspective, are we going to have a fragmented industry back again?
I would say from a pure M&A standpoint we have to continue being creative, really understanding the different risks. Making sure that all the pieces of the puzzle match and work together with the different timing involved.
We are signing long-term commitments, both on the procurement side and on the off-tech side, usually two or three years ahead, when we don’t know what the market will look like from a financing standpoint. Will we have enough tax equity capacity? What will be the cost of debt? What will be the cost of equity? If you underwrite a project today at a 10 percent ROE and the cost of equity is 12 percent in three years from now, you’re in big trouble. On the other hand, if it’s at six percent then that’s good, right?
Taking all those risks into consideration and making sure that we address the long-term dynamics of the market—that’s key for us, but ultimately, there is not a simple answer. When it comes to making a short-term decision for a long-term asset, you have to assess all the risks—even if I’m on the commercial side where we tend to be to be more aggressive because we want to transact—we have to be wise enough.
But as the risk management team is here to remind us, ultimately you have to create value. You don’t build assets to build megawatts; you have to create value.
Arora-Cox: As we come to the end of our conversation, Kevin, I want to shift to a lighter note. And I know your love for tennis. And M&A can sometimes seem like a game of tennis where you are serving up to challenges and trying to avoid hitting the net. Based on our conversation today, any words of wisdom or winning strategies for our listeners who are trying to ace their next deal?
Yaich: When you start your career as an M&A professional, you build your brand internally. You work with your SMEs inside your company. You show your professionalism, your work ethic inside the company, and you build your execution skills. And that’s very important, because later in your career, you need to be able to mentor the one below you, right?
Then you get to your mid stage of your career. Your skill set becomes origination. Now you have to find deals, right? As an individual, you have to build your brand outside of the organization. That’s very important because ultimately, if you’re a good deal maker, you’re not going to pay a premium, so people are going to do a deal with you because they like you. Because they want to transact with you. So that’s midstage in one’s career. First, execution. Second, origination. Lastly, and where I am at in my career, it is more leadership.
You get a team working for you. You have more junior people focusing on execution, more senior people on origination. And you have 20, 25 deals at a time that you have to work through. And here the skill set becomes two-fold: there’s leadership—being able to mentor, to transmit to your team what you’ve learned, your business ethic, etc.
The second is really developing the 80/20 because there is no way you can go through 25 MIPA or anything like that. Developing the ability to identify the issue very quickly in the document, going straight to the point and teaching your team to do the same thing, so you can be more efficient and really identify where to focus.
So you first develop your execution skills—take your time, be a strong professional. Second, your origination, your people skills—go get the deal. Ensure the other company wants to give it to you. And third, leadership. Whatever you learn in one and two, you give it back and you mentor.
Arora-Cox: Thank you for that winning strategy, Kevin, and thank you for joining us!
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