active ownership on publicly listed green smes : delivering social, environmental and financial...
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César De Brito, Partner - Eco Responsible Capital Partners - FranceTRANSCRIPT
Eco Responsible Capital The green microcap inefficiencyCésar de Brito, [email protected]
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Overview & Team
The green microcap market inefficiency
What are the options?
Conclusion : active owners are requested
Appendix
Agenda
1 Overview and Team
Eco Responsible Capital (ERC) Partners is an independent investment firm with the aim to:
– Provide efficiently capital to the green revolution– Active owner to support the growth of green companies– Create value for investors, companies and community– Share sector knowledge with Limited Partners– Promote sustainable and responsible practices
ERC Partners mission
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Identification
Selection
Investment
Active ownership
Exist
Listed euity trackCompany knowledgeSector knowledge
Due diligence expertise
Stock market rulesPrivate equity experience
Operational backgroundBoard seatHands on Approach
Large cap networkIPO experience
ERC Partners’ Board Members
Juan AGUIRIANO – Global Head Sustainability Solutions at DuPont in Geneva. Former Head of DuPont Safety Resources Europe, Middle East & Africa.
Bernard CHABOT – Consultant Renewable energy feed in tariffs, Former Senior Expert on Renewables at ADEME in France.
Bertrand CHARRIER, Former Director General of President J. Chirac’s foundation, Vice President of Green Cross International for 12 years, Governor of the World Water Council, Foundation Captain Jacques Cousteau for 15 years.
Jean Marie CHEVALIER – Professor of economics at the University of Paris-Dauphine, Director of CGEMP and IHS-CERA, member of the Board of Directors of Nexans,Ton RUNNEBOOM, Chairman of the Biobased Raw Material platform SenterNovem , President of the Foundation Warming Neutral in Amsterdam, Member of the boards of NatureWorks Inc, USA, BMCN NV, Europe, Novameer BV.
Jean Francois FOUQUET, Founder of PCCa. Private Capital & Company Advisory. Investment banker at Indosuez then Head of Private Equity at Credit Agricole Geneva.
Serge LEDERMANN, Partner and Head of Asset management at Banque Heritage Geneva and previously at Lombard Odier and UBP.
StrategicAdvisory Board
InvestmentAdvisory Board
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Hanalei Finance diversified Portfolio
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Energy production Service providers
France
US
2 The green microcaps market inefficiency
Green microcap: market inefficiency
Most affected segment after the 2008 crisis
Prices doesn’t reflect anymorecompany value
Poor broker coverage of microcap limit attraction
Very limited financing options
-79%
Wilderhill Clean energy Index
Green Microcap index
2007 2008 2009
Source: ERC, Bloomberg February 2009
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Green Microcap: untapped segment
Largest number of companies
Good diversification
Cheapest Sector with Limited Competition
Leaders of tomorrow
Expansion Capital Requirement
Limited Downsize Risk
+27 %
- 16 %
- 21 %
The listed green equities universe by market cap.
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Sub sector Market Cap EUR
NB Employee Sales
EBITDA P/B P/S
Agriculture 13'646'103 280 19 0 1.1 0.7Aquaculture 15'099'894 464 53 5 1.0 0.6Bio 33'216'921 353 76 3 2.2 1.2Biofuels 23'467'208 245 64 3 4.5 22.0Biogas 26'270'963 187 30 -9 1.2 0.5Biomass 31'545'303 823 9 1 2.8 0.9Bioplastic 18'881'023 81 0 -2 8.9Carbon 16'977'452 206 10 -3 10.1 1.0CleanTransportation 62'769'058 5'032 357 -4 4.2 11.9Decontamination 55'221'347 205 53 7 6.3 2.7Divers 23'885'489 377 27 -1 4.5 14.8Efficiency 43'757'970 531 88 2 3.5 15.3Environmental Services 20'738'402 532 44 2 5.1 7.6FuelCell 35'089'237 122 9 -10 2.1 12.5Funds 32'287'322 324 17 4 2.1 6.1Geothermal 58'592'166 615 65 7 2.7 8.8GreenUtility 51'065'650 99 23 1 2.0 65.5Healthy Living 5'987'449 125 4 1 0.8 0.4Hydrogen 281'059 25 0 -3 0.1 0.6Hydropower 14'826'238 12 1 1.6 3.2LED 12'431'917 300 15 -1 11.9 0.9NewMaterials 39'858'538 297 27 -3 4.1 18.3Solar 47'660'966 366 87 1 7.0 112.7Timber 34'437'601 802 119 17 1.7 3.4Waste 35'518'753 677 60 5 2.3 5.2Water 44'336'394 708 106 10 2.5 16.7WavePower 12'089'458 57 1 -4 0.8 17.5Wind 35'168'909 273 41 -5 3.2 27.4
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1st category: mature but mispriced
Company data
Market capitalisation €60 M
Price to cash 0.5
Price to sales 16
Price to Book 0.44
Debt/Equity -
Operating assets 15 MW
Nb employees 150
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1st category: mature but mispriced
Company data
Market capitalisation €15 M
Price to cash 5
Price to sales 0.12
Price to Book 0.75
Debt/Equity 229%
Assets Stores
Nb employees 186
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2nd category: early stage
Company data
Market capitalisation €18 M
Price to cash 6
Price to sales 18
Price to Book 0.6
Debt/Equity 0
Pipeline -
Nb employees 30
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2nd category: early stage
Company data
Market capitalisation €8 M
Price to cash 0.4
Price to sales 2.1
Price to Book 0.49
Debt/Equity 24%
Assets -
Nb employees 174
3- What are the options?
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Solution 1: wait for industrial strategic BOSCH bid on ERSOL AG - February 08
Company data
Bid Value € 1131M
Price to Cash 40
Price to sales 3.66
Price to Book 3.67
EBITDA x 11
Debt/Equity 0.59%
Nb employees 1378
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Company data
Bid Value $500 M
Price to cash NA
Price to sales 1.58
EBITDA x 19,7
Debt/Equity
Assets -
Nb employees
Solution 1: wait for industrial strategicSchneider Electric bid on Xantrex July 08
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Company data
Bid Value £39 M
Price to cash 5.8
Price to sales 0.8
EBITDA x 5.5
Debt/Equity 60%
Assets -
Nb employees 65
Solution 1: wait for industrial strategic GDF SUEZ bid on Econergy - June 08
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Solution 2: merger between peers to raise capital. Geothermal case sept 09
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Company data
Market capitalisation €2.5 M
Cash €9 M
Price to sales 0
Price to Book 0
Debt/Equity 0
Cash burn €-3,5 M
Nb employees 28
Solution 3: delisting from stock market. CMR Fuel Cell – March 09
Signed ODMcontract
One of Founderleft
IPO raise10M£
DelistingCash return
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Company data
Market capitalisation $9 M
Price to Cash 1.1
Price to sales 0.8
Price to Book 0.15
Operating assets 24 MWPipeline of projects 14 MW
Nb employees 28
Solution 3: delisting from stock market. Renegy Holdings March 09
Hanalei Finance owns 20% today
4- Conclusion : active owners are requested
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1- « Leverage expertise before investing »
2- « Review the business plan periodically, created and monitored detailed operational – not just financial – metrics.»
3- « Over-invest time in the first 100 days within the company and with the management »
4- « Strengthen the management team if needed before closing »
5- « Institute substantial and focused incentives for performance among the company »
The 5 rules for active ownership
McKinsey, How do they do it? Active ownership in private equity
Active ownership on listed green microcaps is requested
Management support Strategy support Execution support Turnaround option
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Sector expertise Company management
track record Deep network Staffing network
Stable shareholders Growth capital Venture Capital Dept access
Hands on, board seat investor
Long term commitment
Company need
ActiveInvestor answer
Operational Financial
ESG criteria integrated all over the invesment process for micocaps
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Identification
Selection
Investment
Holding period
Exist
ESG assessmentManagement commitment,Business model assessment,,Environmental assessment,Social check,Governance assessment,Technology assessment,Financial risk assessment, Legal risk assessment,Product risk assessment,References checks,Customers’ checks,Supplier’ checksCompetitors’ checks.
ESG over ownership
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« The value generated by these “star deals” comes overwhelmingly not from market appreciation or from smart bets on rising sectors, but from the better performance of the target company in comparison with similar companies in the same industry. »
McKinsey, How do they do it? Active ownership in private equity
ESG performance is not part of the performance is creating the performance