Drax completes £702m acquisition of Scottish Power portfolio

Drax Group has completed the acquisition of Scottish Power's portfolio of pumped storage, hydro and gas-fired generation, which comprise the Scottish Power Generation Group and its wholly owned subsidiary SMW, it announced on Wednesday.

The FTSE 250 company had initially announced the acquisition, for total consideration of £702m in cash, on 16 October.

At the time, Drax said the strategic rationale for the acquisition was “compelling”, describing it as a growing system support opportunity for the UK energy system, as well as a “significant expansion” of its flexible, low-carbon and renewable generation model.

It said it would give the company diversified generation capacity through its multi-site, multi-technology composition, and presented new opportunities in trading and operations.

The Drax board also said there was a strong financial case for the investment, describing “high quality” earnings, with expected returns “significantly ahead” of the weighted average cost of capital.

Expected EBITDA on the acquisition was between £90m and £110m in 2019, with a debt facility agreed, and net debt-to-EBITDA expected to be around 2x by the end of 2019.

The purchase was said to be supportive of Drax’s credit rating, as well as a reduced risk profile, with the board also saying it strengthened the company’s ability to pay a “growing and sustainable” dividend.

“I am excited by the opportunity to acquire this unique and complementary portfolio of flexible, low-carbon and renewable generation assets,” said Drax chief executive officer Will Gardiner st the time of the initial announcement.

“It's a critical time in the UK power sector.

“As the system transitions towards renewable technologies, the demand for flexible, secure energy sources is set to grow.”

Gardiner said the Drax board believed there was a “compelling logic” in the firm’s move to add further flexible sources of power to its offering, accelerating its strategic vision to deliver a lower-carbon, lower-cost energy future for the UK.

“This acquisition makes great financial and strategic sense, delivering material value to our shareholders through long-term earnings and attractive returns.

“We are combining our existing operational expertise with the specialist technical skills of our new colleagues and I am looking forward to what we can achieve together.”