31 May 2012

Cleantech PE investment: a new dawn?

Despite the ongoing global financial crisis and various reports lamenting the demise of the sector following a poor performance in 2011, private equity investment in the cleantech market appears to be showing some green shoots of recovery, according to figures from Zephyr.

While global private equity funding has generally dropped again this month after having shown promising signs recently, investors appear more willing when it comes to funding companies in the cleantech sector. Figures for April showed a slight decline from March, but in general the picture seems to be improving when compared with the results from a year ago, paving the way for a possible recovery in 2012.

Things were very different just 12 months ago, when only USD 199 million was invested in green energy companies. In the months that followed there were some notable highs, particularly in August, which saw USD 1.475 million ploughed into businesses in the sector, again in October  (USD 1,261 million) and culminating in the year’s high in December (USD 2,736 million).

As these results show, figures for the industry have gone through a number of peaks and troughs in the last year, with another disappointing month in September when just USD 242 million was injected into green energy companies.

Interestingly, although April saw an increase in investment levels, with USD 300 million invested across 18 deals, there were actually fewer deals than in April 2011, the low point of the year. This could signify that private equity investors are regaining confidence, and although many still appear reluctant to invest, those that have decided to take the plunge are providing larger amounts than in previous months. At the very least, things seem to be levelling off, as despite a slight decline month-on-month in 2012, the figures for the first four months of the year have been more or less consistent.

Zephyr’s data shows that the majority of investments in April were made in the US, with nine deals worth a combined USD 292 million. The month’s largest deal was a funding round for Sapphire Energy, which received USD 144 million from Arrowpoint Partners and Monsanto Company along with a number of existing backers. Proceeds will be used to fund the continuing development of Sapphire’s green crude farm, the world's first commercial demonstration-scale algae-to-energy facility. The company’s chief executive Cynthia Warner said the investment shows a strong belief by investors in the cleantech sector, particularly the use of green crude as a sustainable source of fuel.

Apart from this, only one other transaction exceeded USD 100 million, which was Harvest Power’s USD 110 million Series C round of funding from investors including Kleiner Perkins Caufield & Byers, True North Venture Partners and DAG Ventures.

While private equity investment in cleantech companies is showing signs of improved health, it seems that as far as general M&A activity is concerned, things have fallen off the edge of a cliff. Figures for 2012 involving business-to-business transactions in the sector have not shown the same stability as those for private equity. April proved to be no exception, as the value of deals recorded plummeted 73 per cent, from USD 6,692 million to USD 1,800 million.

The volume of cleantech transactions was also disappointing compared with March’s figures, sliding 37 per cent from 151 to 95, the first time that fewer than 100 deals have been recorded at any time in the last two years. Yet again, no deal topped USD 1,000 million, and in fact, none even exceeded USD 500 million.

However, this may not be as bad as it first appears, as the markets have fluctuated considerably in the last year, with figures often rising and falling on a monthly basis, and may just be symptomatic of an unstable economic climate continuing to wreak havoc on the sector.

April’s largest deal was the acquisition of a 55 per cent stake in Brazilian green electricity generation company Multiner by real estate firm Bolognesi, which was valued at USD 349 million.

Only six other deals in the sector exceeded USD 100 million, five of which were funding rounds, and none of which surpassed USD 200 million in value. So in spite of the apparent upturn in private equity, it seems there is still reason to be cautious about the future.

Nevertheless, 2012 could prove to be a better year for cleantech. If private equity investment in the sector continues to build on the relative stability we have seen in the first few months of the year, the future looks more positive and there are signs that things may very slowly be getting back on track.

© Zephus Ltd