Scirocco Energy PLC (AIM:SCIR) said its 50% owned joint venture EAG has entered into an exclusivity agreement to acquire a fully operational biogas plant.
Due diligence is being undertaken by EAG on the special purpose vehicle (SPV) that owns the plant, which Scirocco said has been in production for seven years and generated underlying profits (EBITDA) of £567,000 in its last financial year.
Scirocco expects EBITDA at the plant will rise to £725,00 in the first year of EAG ownership.
Scirocco noted that the acquisition will require £3.8mln of acquisition capital as well as approximately £200,000 in closing costs and will be debt funded to approximately 70% of these costs. End-February 2023 is the target date for completion.
Scirocco said EAG’s strategy is to develop a pipeline of "bite-size" biogas acquisitions in the value range of £3mln-£4mln each.
A typical SPV of this size would generate around £850,000 EBITDA a year with an enterprise value (debt plus equity) in the range of £7.5mln-£8.5mln per plant, it added.
“Based on the strategic objectives and current deal flow pipeline being progressed by EAG, it is the intention that EAG will, subject to securing the necessary funding, acquire two plants through 2023 and a further two plants in 2024,” the company said.
Currently, the EAG portfolio comprises Greenan Generation (GGL) and its 0.5 MWe Anaerobic Digestion (AD) plant in Northern Ireland. EAG estimates GGL has generated EBITDA to 30 September 2022 of £602,000 (unaudited), after £375,000 of costs.
In a statement, Tom Reynolds, Scirocco's chief executive, said: “The JV's initial acquisition of GGL last year demonstrates the low-risk and high-margin profitability of these assets and the value uplift that EAG provides upon completion.
“As detailed in the presentation we provide today, subject to financing being available as expected, the team is confident of building an asset base with enterprise value of up to £100mln by 2027.” (full presentation here).