The sale of a business in any sector at 21x EBITDA will always cause a stir among market pundits, but this was not the case when Finnish district heating firm Elenia Lämpö Oy (Elenia Heat) changed hands at such an aggressive multiple.
Nordic district heating is an attractive sector for infrastructure funds and this transaction stands out given the intense bidding environment which may put off potential buyers for future deals of this nature, as they fear a repeat of the Elenia process, pricing the asset beyond their reach.
District heating in Finland is unregulated and competitive, with 50% of all housing pre-equipped with the infrastructure. On average, 36% of heat produced in Finland is generated from natural biofuels – predominantly wood chips and peat.
Elenia Heat, however, produces 70% of its heat from biofuels, which has environmental benefits and is not taxed at such a high level as natural gas.
Finland is one of the coldest countries in the world and Elenia is the tenth largest heating seller – and the second largest private provider – in the nation with 85,000 end users.
Given the attractive nature of the asset, the Elenia Heat auction was as competitive as had been anticipated, allowing the seller achieve impressive multiples as five bidders duked it out.
Elenia Group launched a strategic review on 8 February (2019), announcing plans to divest the district heating division – Elenia Lämpö Oy – allowing it to focus on the core business of electricity distribution, Elenia Networks.
- 3i Infrastructure
- Goldman Sachs Infrastructure Partners
- Ilmarinen Mutual Pension Insurance Company
At the 2018 sale, Elenia Heat’s EBITDA was €25.2 million ($28 million) and its yearly revenue for 2018 was €78.5 million, selling 1.1TWh of heat, gas and electricity.
The sale was jointly run by DC Advisory and Danske Bank – who went out to market with a mandate to seek a high-teens EBITDA multiple.
The first round of bidders attracted several investment funds including DIF alongside Mirova (now rebranded Vauban Infrastructure Partners), AXA IM and Adven.
Details emerged mid-May of another bidder – Arjun Infrastructure Partners – entering the fray for the late-June (2019) deadline for final bids.
Prior to the deadline, Vauban dropped out of the process amid rumours that it had been put off by the level of competition for the asset, which it anticipated would drive the price too high.
The shareholding breakdown of the holdco that acquired Elenia has equity stakes consisting of:
- 37.5% – DIF Infrastructure V
- 37.5% – SL Capital Infrastructure II
- 25% – Local Pensions Partnership Investments
Financing the acquisition debt
The enterprise value of the asset at the time of the sale was around €525 million ($585.7 million) and was funded through 60% equity and 40% debt.
SEB acted as lead bank to arrange the €280 million debt package as well as serving as facility and security agent. The entire banking team included:
- BNP Paribas
- National Australia Bank
- OP Financial Group
Each bank lent €46.7 million towards the acquisition and the debt packages comprise:
- €210 million – acquisition term loan
- €15 million – working capital facility
- €55 million – revolving credit facility
The debt has a five-year tenor and was lent at margins of Euribor +175-250bp.
- DC Advisory – Elenia financial
- Danske Bank – Elenia financial
- Clifford Chance – Elenia legal
- Jefferies – consortium financial
- Ashurst – consortium legal
- Herbert Smith Freehills – bank lending legal