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The Carbon Industry Is the Unsung Hero in the Cleantech M&A

Posted Sep 07 2010 9:21pm
Voices from the cleantech venture sector whine at least once a quarter about lack of M&A activity.  In carbon that hasn't been the case this year (though only a handful of US venture capitalists could stomach that "obscene" foreign policy risk in carbon, and so largely non traditional investors made the bucks).  Despite the carbon sector getting hammered somewhere between 50-80% from its highs, depending on what metric you use, once prices fell, smart money started buying.  So despite the massive uncertainty hanging over the sector, the last year has seen upwards of $1.5 Bil in M&A. 

Of course, the whiners will complain that it's all policy driven and European and that's not our market.  And I'd respond, yes, and sort of.  Of course it's policy driven you nimwit - energy, environment and cleantech is always policy driven.  And the cleantech market is global whether you like it or not.  So what exactly makes EU policy risk more risky than handicapping the California PUC?  Silicon Valley itself is close to irrevelant in cleantech, except for the pools of venture capital collected there.  Get global people.

Or the whiners would complain you can't spend a billion dollars to see exits at a $1.5 Billion.  And I'd respond, yes, I can do math, too, if you had to spend a billion dollars maybe it wasn't so good an idea.  Maybe you should follow my Rules in Cleantech Investing .  And then I'd add, and these carbon M&A exits are at bargain basement prices, down two thirds to 80% in some cases from their public market highs, and are by and large a hell of a lot better than the M&A exits in other sectors.  To which the whiners would reply, yes but some of those highs were in damn foreign currencies, or worse AIM listed stocks.  And we don't understand AIM because it's foreign therefore it must not be real, and since it has less liquidity than a company 10x that size on Nasdaq, we should hate it (not withstanding that AIM stocks liquidity is like 500 hundred bejillion times the liquidity as a private venture backed company).  To which I'd respond right, but if the check clears, and it's measured in 7 or 8 or 9 figures, or real Tier 1 buyers buy companies listed on AIM, maybe it IS real after all.  But then I never went to Stanford, Berkeley, MBA school, or even a private university, so what would I know. ;)

Anyway, while that may explain the unsung part for carbon M&A, the reality of who bought what is pretty interesting.  A few threads to chew on:
  • Primo assets are getting sold, often first movers founded years before the carbon boom
  • At bargain basement prices
  • Some real money is getting made and a few founders can retire
  • It's tier one acquirors doing the buying
  • It's very global
  • It's not very technology focused
A few of the key deals, which just don't seem to stop coming:

The latest announcement is the NYSE tying up a JV merging its carbon trading assets with voluntary markets registry operator APX. APX is a holdover startup from California's botched power deregulation days, which got into RECs, and later carbon now running most of the major voluntary carbon registries.  Most recent investors included Goldman Sachs.

Probably at least in partial reaction to earlier to the announcement earlier this year of the $600 mm acquisition of Climate Exchange Plc by Intercontinental Exchange (NYSE: ICE). 

In May Barclays announced the acquisition of Tricorona , one of the larger independent CDM carbon developers (and one of our pilots) for 100 mm pounds.

Ostensibly to match JP Morgan's acquisition of EcoSecurities for $200 mm late last year.  Mission Point was one of the original backers here.

And this last quarter French energy giant EDF announced it was acquiring Chinese CDM developer Energy Systems International .  EDF was the losing bidder to JP Morgan for EcoSecurities.  A 37.5 mm ton CER consolation prize.

And in the media and data analytics end of carbon Reuters acquired long time front runner Point Carbon for a rumored nearly US$200 mm , ostensibly to match the acquisition of Point Carbon's largest competitor, New Energy Finance by Bloomberg.  Oak Investments is the rumored big investor beneficiary.

Numerous smaller deals have been done over the last two years, as well.  SAP acquiring Clear Standards and IHS acquiring ESS in the software space, energy giant AES acquiring the bankrupt assets of early CDM leader AgCert, and JP Morgan's 2007 acquisition of Climate Care, and in consulting, Point Carbon's acquisition of Perspectives GmbH, Lloyd's Register acquiring Ryerson Master & Associates, et al.

Of note, Reuters, Barclays, NYSE and ICE announced their deals in 2010 after the Copenhagen political debacle.

As I said, carbon appears to be the unsung M&A hero in cleantech markets.  Not bad for a sector virtually ignored or written off by US VCs, pummeled by the winds of global policy fortune, and barely understood by a soul in the American media.

Neal Dikeman is the Chairman and cofounder of Carbonflow , cofounder of Zenergy Power (AIM: ZEN) and a founding partner of cleantech merchant bank Jane Capital Partners .  He is chief blogger of Cleantechblog.com
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