There are, greatly simplifying, two ways to create a giant. The first is to grow indoors: gain market share and make your own businesses flourish. The second is riskier, but sometimes also more profitable: use your checkbook and buy competitors that have already grown on their own merits. Iberdrola, like almost all large listed companies, has touched both suits throughout its almost two centuries of history. With a recent twist of the script.
Iberdrola’s first period of large acquisitions dates back to a quarter of a century ago. They were the first years of true internationalization of Spanish companies and, also, those in which the Basque electricity company went from being a local company – very local – to becoming what it is today: the second largest listed company in the country and one of the largest in Europe, with powerful branches in the United Kingdom, Brazil and the United States. Almost 25 years after that, Spain barely accounts for 40% of its gross operating profit (ebitda). And going down.
It was the year 2000, a merger with Repsol had just been attempted and shortly after another failed attempt with Endesa would arrive. Iberdrola then began to show its paw in the always turbulent corporate market: it would pay more than 1,000 million euros, at the current exchange rate, for the Brazilian Celpe, Coelba and Cosern. A year later it would take over – at a knockdown price, around 400 million – the assets in Spain of the defunct Enron.
In 2004 he landed in Greece. In 2005, in Poland. In 2006, in the United States and, above all, in the United Kingdom, where it would pay more than 17,000 million for Scottish Power, its first truly significant venture north of the English Channel and the largest purchase ever made by a Spanish company in the outside. A few months later it looked to the other side of the North Atlantic: it acquired the American company Energy East for 6.1 billion. Even the listing of its renewable energy subsidiary for more than 20 billion euros in 2007. Big words: impossible to understand the giant it is today without those movements.
The purchasing process has accelerated in recent years. This 2024 it has scratched its pockets in the United States (2,300 million euros to take over 100% of its subsidiary Avangrid, an offer that has just received the approval of its shareholders) and in the United Kingdom (5,000 million for the distributor ENW, including debt, key to strengthening its position in the northwest of England). All, after the juicy sale of assets in Mexico, at a price even higher than their real value.
These two operations, both billion-dollar, embody Iberdrola’s historical strategy, a fertile arena for large-scale corporate operations. During this time they have been carrying out other smaller operations, such as Infigen Energy in Australia, in full confinement, the purchase of the Brasilia electricity distributor, or the acquisition of offshore wind projects in the United Kingdom and the United States from Vattenfall. CIP, and which they are now developing. In addition, it planted the seeds in Brazil for its now powerful branch in the South American country, which culminated in the merger in 2019 of Elektra and NeoEnergía for a value of more than 10 billion euros.
The acceleration of recent months has two reasons. The first, in January, the refusal to buy PNM Resources, an operation that opened the door to a huge market in several US states but that has changed – after clashes with the regulator – due to the more than 9,000 million euros approved in investments in distribution, double what PNM meant. The second came a couple of months later, with the definitive closing of the sale of its gas plants in Mexico. A transaction at a high, very high price – 6,000 million euros, which is said soon -, with which it killed two birds with one stone: it got rid of fossil assets that did not fit into its roadmap – which involves exclusively business of renewables and networks—and fattened its coffers to undertake new adventures. Said and done: in May he broke the bank with Avangrid and at the beginning of August he did the same with ENW.
There is more. The president of Iberdrola, Ignacio Sánchez Galán, has just quantified the investment opportunities in the next six years at 100,000 million euros. Without clarifying, of course, whether they were organic or inorganic bets. Based on the recent strategy, one thing is clear: investments in members of the Organization for Economic Cooperation and Development (OECD, the club of rich countries) and in networks will prevail. With returns, in short, predictable, quasi-guaranteed. Faced with the adventures of the past, more classical music and less rock and roll.
“For several years it has focused on digesting its organic growth, with few corporate operations and, above all, much smaller ones. This has changed, especially as a result of the sale of its business in Mexico,” emphasizes Fernando García, head of investment analysis in Europe at the Royal Bank of Canada. Above all, it values the purchase of ENW, a distributor that operates in an intermediate area between two large Iberdrola distribution areas. “Although it pays a significant premium, close to 40% with respect to the value of the regulatory asset, the possibilities of synergies it offers are enormous, because it now has three regions together,” he explains by phone.
Selective divestments
Already the largest electricity company in Europe and the fourth largest in the world by stock market value, the Spanish company’s shares are currently at historic highs. It also has the favor of the majority of analysis houses, which seem to validate the new purchasing strategy. Also that of selective divestments, giving entry to financial partners (especially pension and sovereign funds, many of them from Persian Gulf countries) in the capital of renewable assets in Europe and the United States to raise and reduce risks while continuing to integrate them into your income statement.
The opposite of this renewed investment impetus is the debt, of more than 45,000 million euros and with no great signs of falling in the short and medium term. Faced with the dilemma of reducing liabilities or launching into the market, the electricity company has opted for the second route. “The important thing is that the rating maintains it and that, as its profits increase, the ratio between debt and EBITDA, which is what really matters, is falling,” García ditches. “In addition, its commitment to regulated assets and advanced economies expands its repayment capacity… and to contract new loans, if necessary.” Said and done: the electricity company has just closed a bond issue of 2,150 million.
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