IN SEARCH OF A BRIGHT FUTURE: An Applied Corporate Finance Analysis on the Future M&A Potential of U.S. Solar Companies

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Cary Krosinsky
Essay Abstract: 
Despite tremendous growth in the past few decades, solar companies in the U.S. continue to accumulate significant operating losses, resulting in decreased cash flow and increased debt levels. Using precedent transactions, comparable companies, and accretion and dilution analyses, we identify key trends in the U.S. solar industry and explore the potential of Mergers and Acquisitions (M&A) as a tool to improve operating margins. The results indicate that debt and bankruptcy avoidance may have been a key driver in precedent transactions. Declining average M&A premiums of -27.8% per year compounded since 2015 suggests an overall loss of confidence in the solar market. Current solar companies demonstrated slow revenue growths of 7.1% weighted-average despite high levels of fundraising and capital expenditures. NTM EV/EBITDA valuation multiples of 8.0x are 2.0x lower than current levels. Despite these unfavorable conditions, six illustrative merger scenarios between current comparable companies indicate significant accretion possibilities and potential for value creation. Assuming market conditions do not deteriorate further and that capable acquirors exist, M&A can be an effective tool in mitigating potential credit risks.