Sprott Power Corp., one of Canada’s small but rapidly expanding public wind power companies, has started a “strategic review” that could see the company put up for sale.
The company is initiating the review, chief executive officer Jeff Jenner said in an interview, because it needs to raise a lot of money for expansion, and it wants to explore all the options for getting those funds.
The options under the review include setting up a joint venture, welcoming a strategic investor to the company, or a sale of the entire company, Mr. Jenner said. He said there have been no offers for the company yet.
“We are looking for a substantial amount of capital, and we are trying to do it in the most efficient way possible,” Mr. Jenner said. Sprott Power hopes to more than double the size of its business in the next few years, he added.
The company has wind farms in operation in Ontario and Nova Scotia, holds contracts to build new ones in Saskatchewan, Quebec and Ontario, and has longer-term development plans in other parts of the country.
A company of Sprott’s size, with annual revenue of around $15-million and a market capitalization of about $80-million, has more trouble raising money than larger firms, Mr. Jenner said.
Sprott’s shares jumped by more than 12 per cent on Thursday morning after the strategic review was announced.
Analyst Rupert Merer, of National Bank Financial, said it is no surprise that Sprott is taking action because it is essentially “starved for capital for growth,” given spending needs of more than $100-million over the next year and a half. At the same time it is trading at a discount to its peers, he said.
Because of Sprott’s small size, it may not be a takeover target for some of the larger power utilities in Canada, Mr. Merer said. However, it might attract a financial partner interested in picking up power assets.
He noted the recent $500-million investment from the Caisse de dépôt et placement du Québec in wind power assets owned by U.S. firm Invenergy Wind LLC. “You do see the private equity players taking an interest in utility assets,” he said. “That could be another potential outcome here.”
Investment funds are natural equity players in the wind business, Mr. Merer said, because they can supply a lot of capital that is needed, and they like the relatively steady stream of revenue generated as a result of long-term power contracts. “In a low interest environment you can get much better returns than you can in debt.”
Sprott Power is managed by an arm of Toronto asset manager Sprott Inc., which holds roughly 7 per cent of the company’s shares, according to recent filings. The strategic review will be conducted by a committee of the board’s independent directors, advised by Canaccord Genuity Corp.