INVESTMENT 39
widespread introduction of emissions- reduction legislation. While low-carbon investors are
generally familiar with energy-effi cient technology – everything from insulation to LEDs – there is an emerging world of services designed to complement them. In 2009, Climate Change Capital bought Climate Energy, an English company with a £20m annual turnover that advises local government, social housing providers and private homeowners on improving and fi nancing residential upgrades, and is partially funded by central government. The purchase was driven by a belief stronger policies to encourage energy- effi cient retrofi ts of UK building stock are on the horizon. Impax also invests in energy
effi ciency services. It has taken stakes in Ricardo, which focuses on energy- effi cient design for the automotive sector, as well as the newly listed Ameresco, which off ers an innovative approach to improving the energy effi ciency of US federal government buildings. Instead of the classic consultancy off ering that would see it conduct an energy audit, write a report outlining where effi ciency could be improved, then invoice the owner or occupier, Ameresco has relationships with banks that allow it to off er clients fi nancing for the necessary work. Clements says: “Margins aren’t huge, but it’s a good business model. ”
Environmental
service companies are essentially selling the big brains of their staff
businesses rarely expand at lightning speed. It takes time
to recruit new staff with the right skills, far longer than it takes to ship
out a few thousand more energy-
effi cient light bulbs. This limited capacity for rapid
Private equity One of the most signifi cant ‘problems’ investors must face up to when judging service companies is, ironically, often the company’s biggest asset – intellectual capital. Whereas a manufacturer off ering the right product can grow very quickly simply by producing more, many service companies are essentially selling the big brains of their staff .
This is particularly true for technically led consultancies and it’s why such
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growth makes investment managers such as O’Neill careful: “The question is, is there a growth story? Sometimes there is, sometimes not. We’re a growth capital investor, we want to know if a service company has real scope for growth.” Although rapid growth isn’t easy
for service companies, some have succeeded, with investors reaping rewards. One high-profi le success story is Environmental Resources Management, a leading company in global sustainability consultancy. One of the fi rst pure-play consultancies to emerge during the 1980s, ERM quickly internationalized and in 2001 won investment from
private equity fi rm 3i in a deal that valued it at £200m. Four years later, that value had grown substantially to £348m, when Bridgepoint replaced 3i. Earlier this year, ERM welcomed its third PE investor, Charterhouse Capital Partners, which took a 65 percent stake. For this latest deal, ERM’s value was pegged at £585m, almost 200 percent growth in ten years. Another consultancy that has grown
strongly and attracted PE investment is SLR Consulting, known for its expertise in waste technology and advising mining clients. In 2002, PE fi rm ISIS took a minority stake. Six years later, 3i replaced ISIS in a deal that valued SLR at £100m.
Know the market Not all PE decisions have been wise ones, however, and for every success story there are many failures. There is no substitute for thorough research, since the key competitive edge of an investor is an understanding of market opportunities and risks. Is the company focused on relatively recession-proof sectors? In some parts of the world, these areas might be services
ISSUE 04. SEPTEMBER 2011
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