by Javier Herrero, Managing Partner at Bauhaus Capital Partners. Read his Renewable Energy Investment, Acquisitions and Business Development Blog. Follow him on Twitter @jherrerosdc.
There is strong interest from corporations eyeing the clean energy sector. In an article published recently in the New York Times titled “Private Equity Is Bullish on Clean Energy” – “One of the most exciting things about the space now – this applies all the way down the bottom to the early-stage technology firms – is that there is a tremendous amount of strategic interest in this space,” said Hovey Kemp, a private equity lawyer at the law firm Goodwin Procter.
The media and specialized reports are full of how private equity and other investors are starting to regain the pre Lehman levels. So why is it so hard to get Renewable Energy and cleantech projects funded, especially in the US, when everywhere you look there is a shared enthusiasm and vitality of global emerging and middle market companies? There is general belief in all investment circles that for those projects and companies that are proactive and well positioned, there is likely capital to be found.
Why is so difficult then for renewable developers and cleantech companies to access these funds?
The answer is easy and has three caveats:
1. Start the fund raising process before you need it.
2. Investors and developers or Co’s don’t speak the same language in the post Lehman age.
3. The hurdles are now higher and the process deeper more complex: get an expert to design the specialized roadmap and then guide you through all the pitfalls that will no doubt be found along the way.
Financing Process Flow Chart
Source: Financing Growth Stategies, Capital Structure and M&A Transactions, Marks et al.
The difference today is one of access, not just one of getting a better deal or better terms. This applies to both debt and equity from a wide range of sources: from commercial banks to asset-based lenders to specialty finance companies: to venture capitalists to strategic partners.
The discipline of an adviser taking you to equity or debt will force the management to face the hard issues and take measures for better operation of the business.
M&A firms or investment banks are financial intermediaries (not investors) that act as an underwriter or agent for asset sales or corporations raising capital or seeking strategic transactions. Many maintain broker-dealer operations, provide market analysis and offer advisory services to investors and even business development services and intelligence. Profiling your asset or company to best lender class is essential in not loosing time and resources.
Expected Return Rates by Investor Asset Class.
Financing Growth Stategieas, Capital Structure and M&A Transactions, Marks et al.
There are several tiers or levels of advisory firms. The largest are global and often referred to as the bulge bracket firms and can be quite expensive and will not take on smaller and as yet suspicious renewable energy transactions. The second –tier firms are usually regional in nature, have focused operations in a geographic area or in a local business specialty such as oil, commodities, heavy industry or health care.
The third-tier firms are referred to as boutique firms and specialize in a particular market niche, i.e. the new renewable energy, cleantech and efficiency sectors. Some of these specialized boutique advisory firms have global reach.
Most emerging growth and middle market businesses and asset sales are in this bracket until the revenue or equity transaction being studied exceeds $50 million to $100 million. In fact most start-up and emerging growth companies or new energy assets or development portfolios will only be able to attract the attention of the third-tier firms and placement agents, because of the small size of the potential transaction and limited fees involved.
Keep in mind that the tier in which the advisory firm operates is not necessarily a reflection of the quality of the services offered. A key factor in selecting you M&A or advisory firm is matching the needs of the asset or your company with the focus and track record as well as the quality of the management team that will be personally handling your account.
Photo Courtesy of Benjamin Earwicker
© 2010, Javier Herrero. All rights reserved. Do not republish.