He thinks he can get a double-digit return on his purchase of Archaea, which extracts gas from landfills.
BP has joined the latest US gold rush. The British giant announced on Monday that it will pay $3.3 billion – a 54% premium – for Archaea Energy, which extracts gas from landfills. The expanded and extended grants, thanks to Joe Biden’s Inflation Reduction Act, help explain why BP believes it can quadruple Archaea’s ebitda by 2030 and get a double-digit return on its investment.
Analysts expect Archaea to earn some 250 million ebitda in 2023, according to Refinitiv. If we add a net debt of 800 million, BP’s offer values the company at a multiple of almost 17 times the EBITDA. It is a high price when compared to other recent deals in the renewables sector: Germany’s RWE is going to pay 11 times for Consolidated Edison’s solar business.
But Archaea, which went public through a merger with a SPAC in 2020, has almost 100 projects underway, double the current number. BP will pressure the firm to produce only renewable gas, because supplies are tight and it is more valuable to the industry. trading from BP than electricity. The so-called green gas receives subsidies. In addition, Archaea said in an August that provisions of the anti-inflation law, such as tax credits worth up to 30% of eligible development costs, would increase the profitability of planned projects and make smaller ones attractive.
Archaea should earn about 150 million after taxes next year, which would give BP a return of 4%. But the British company believes that its acquisition can generate 1,000 million EBITDA by 2030, including some 1,700 million additional capital expenses. If the grants help the company maintain its rapid growth, the acquirer’s goal of a double-digit return on its investment is achievable. It’s unlikely to be the last company to pan for gold in America’s green energy grants.
