EcoValuScreen

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Discover value through a new lens

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EcoValuScreen

  1. 1. EcoValuScreen Discover value through a new lens.
  2. 2. Enhancing due diligence Why it matters: Expanding transactional environmental due diligence practices beyond the current focus on risk mitigation will help identify new opportunities for operational improvement & value creation. How we did it: The Carlyle Group, Environmental Defense Fund & The Payne Firm* developed a flexible & scalable due diligence screen that enables investment professionals to identify environmental opportunities that improve operations, reduce costs & strengthen market positions of potential portfolio investments. How it works: Investment professionals use the screen to evaluate how environmental management can enhance the value of a new acquisition, inform the bidding process & be incorporated into the post-acquisition management plan. *For more information on Carlyle, EDF & Payne, see slide 14.
  3. 3. Why it matters Cost cutting Efficiency & cost-cutting opportunities Cost savings estimates Operational improvement plan Revenue growth Revenue generation opportunities Revenue growth estimates Growth plan Risk mitigation Risk mitigation opportunities Liability estimates Risk management plan Expanding transactional environmental due diligence practices beyond the current focus on risk mitigation will help identify new opportunities for operational improvement & value creation. Today Future
  4. 4. How we did it <ul><li>Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental & business performance of 327 current & legacy Carlyle portfolio companies. </li></ul><ul><li>Correlation of common business activities with environmental impacts : The portfolio analysis revealed a high correlation between environmental impacts & 10 common business activities that occur most frequently across Carlyle’s investment sectors. </li></ul><ul><li>Opportunity identification: In addition, the analysis began to reveal specific initiatives to reduce environmental impacts of the common business activities while driving financial savings. </li></ul><ul><li>Integration with due diligence process: The new EcoValuScreen is designed to be flexible, broadly applicable & easily incorporated into Carlyle’s current due diligence practices. </li></ul>Carlyle, EDF & Payne developed a flexible & scalable due diligence screen that enables investment professionals to identify environmental opportunities that improve operations, reduce costs & strengthen market positions of potential portfolio investments. The EcoValuScreen was developed through a four-step process: 1. 2. 3. 4.
  5. 5. How we did it Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental & business performance of 327 current & legacy Carlyle portfolio companies. 1. 1 Environmental impacts were evaluated across 5 key areas: greenhouse gas emissions, water use, waste production, forest product use & priority chemical use 2 Business impacts were evaluated across the entire value chain: including supply chain, operations & facilities, distribution & fleet, product use & disposal Aerospace & Defense Automotive & Transportation Consumer & Retail Industrial Healthcare Telecom & Media Technology & Bus. Services Total (7) Carlyle investment sectors 25 19 26 50 32 41 134 327 Portfolio Companies Water Waste Forest Products Priority Chemicals GHGs Operations & Facilities Product Use & Disposal Distribution & Fleet Supply Chain Environmental Impacts 1 Business Impacts 2 Low/Med/High impact Portfolio Companies
  6. 6. How we did it Correlation of common business activities with environmental impacts : The portfolio analysis revealed a high correlation between environmental impacts & 10 common business activities that occur most frequently across Carlyle’s investment sectors. Aerospace & Defense Automotive & Transport Consumer & Retail Industrial Healthcare Telecom & Media Tech & Bus Srvc. Resources, Ag, Raw Materials, Energy Casting, Forging, Stamping & Melting Chemical/Processing Compounding Assembly, Forming Services, Technology Construction 1. 2. 3. 4. 5. 6. 7. Heavy Industrials Light Manufact. Services Carlyle Investment Sectors Business Activities Fleet/Logistics Sourcing Facilities Mgmt. 8. 9. 10. All Sectors 2. Indicates high environmental impact
  7. 7. How we did it Opportunity identification: In addition, the analysis began to reveal specific initiatives to reduce environmental impacts of the common business activities while driving financial savings. Resources, Ag, Raw Materials, Energy Casting, Forging, Stamping, & Melting Chemical/Processing Compounding Assembly, Forming Services, Technology Construction 1. 2. 3. 4. 5. 6. 7. Business Activities Fleet/Logistics Sourcing/Procurement Facilities Management 8. 9. 10. 3. Water Waste Forest Products Priority Chemicals GHGs Cost Savings Revenue Expansion Risk Mitigation <ul><li>Changes to fuel mix </li></ul><ul><li>Waste heat recovery </li></ul><ul><li>Right sizing of motors </li></ul><ul><li>Plant layout improvements </li></ul><ul><li>Waste heat recovery </li></ul><ul><li>Redesigned supply chains </li></ul><ul><li>Waste heat recovery </li></ul><ul><li>Refrigeration </li></ul><ul><li>R&D Labs </li></ul><ul><li>Data center analysis </li></ul><ul><li>Logistics software </li></ul><ul><li>Improved maintenance </li></ul><ul><li>HVAC, lighting, sensors </li></ul><ul><li>On-site generation </li></ul><ul><li>Excess tradable credits </li></ul><ul><li>Co-generation </li></ul><ul><li>Biofuels production </li></ul><ul><li>Composting, production of soil nutrients </li></ul><ul><li>Backhaul contracting </li></ul><ul><li>GHG consulting services </li></ul><ul><li>GHG consulting services </li></ul><ul><li>Emissions compliance </li></ul><ul><li>Fuel & electricity supply </li></ul><ul><li>Fuel & electricity supply </li></ul><ul><li>Fuel & electricity supply </li></ul><ul><li>Emissions compliance </li></ul><ul><li>Fuel & electricity supply </li></ul><ul><li>Emissions compliance </li></ul><ul><li>Fuel & electricity supply </li></ul><ul><li>Driver training </li></ul><ul><li>Green procurement </li></ul><ul><li>Lighting retrofits </li></ul><ul><li>Supply chain </li></ul><ul><li>Backhaul contracting </li></ul><ul><li>Car accident reduction </li></ul><ul><li>Maintenance risk mitigation </li></ul>Project opportunity areas Heavy Industrials Light Manufact. Services All Sectors
  8. 8. How we did it Broad scan/issues & opportunity identification Target selection Key process grouping Selective deep dives Risk mitigation opportunities Liability estimates Risk mitigation plan Efficiency & cost-cutting opportunities Cost savings estimates Operational improvement plan Revenue generation opportunities Revenue growth estimates Growth plan Management Plan The Carlyle Group: Due diligence modules Revenue growth Cost cutting EcoValuScreen: Integration with current due diligence process: The new EcoValuScreen is designed to be flexible, broadly applicable & easily incorporated into Carlyle’s current due diligence practices. 4. Risk mitigation
  9. 9. <ul><li>Scan: Scan the target company for relevant business activities. </li></ul><ul><li>Identify: Use relevant business activities to identify an actionable list of operational projects that will enhance environmental performance. </li></ul><ul><li>Assess: Quantify projects’ benefits & identify highest priority environmental & financial performance initiatives. </li></ul><ul><li>Implement: Integrate initiatives into the post-acquisition management plan & share lessons learned across deal teams & funds. </li></ul>How it works Investment professionals use the screen to evaluate how environmental management can enhance the value of a new acquisition, inform the bidding process & be incorporated into the post-acquisition management plan. The screen consists of a four-steps: 1. 2. 3. 4.
  10. 10. How it works Scan: Scan the target company for relevant business activities. 1. <ul><li>Powertrain casting division (Casting) </li></ul><ul><li>Parts production, assembly line (Assembly, Forming) </li></ul><ul><li>Distribution fleet (Fleet/Logistics) </li></ul><ul><li>Sources 50% of parts from external vendors (Sourcing) </li></ul><ul><li>750 sales offices, 20,000 employees (Facilities) </li></ul>Automotive sector target company example Aerospace & Defense Automotive & Transport Consumer & Retail Resources, Ag, Raw Materials, Energy Casting, Forging, Stamping & Melting Chemical/Processing Compounding Assembly, Forming Services, Technology Construction 1. 2. 3. 4. 5. 6. 7. Carlyle Investment Sectors Business Activities Fleet/Logistics Sourcing Facilities Mgmt. 8. 9. 10.
  11. 11. How it works Identify: Use relevant business activities to identify an actionable list of operational projects that will enhance environmental performance. 2. Casting, Forging, Stamping, Melting Assembly, Forming Fleet/Logistics Sourcing/Procurement Facilities Management Water Waste Forest Products Priority Chemicals GHGs Cost Savings Revenue Expansion Risk Mitigation <ul><li>Plant layout improvements </li></ul><ul><li>Waste hea t recovery </li></ul><ul><li>Improved maintenance </li></ul><ul><li>HVAC, lighting, sensors </li></ul><ul><li>GHG consulting services </li></ul><ul><li>On-site generation </li></ul><ul><li>Excess tradable credits </li></ul><ul><li>Emissions compliance </li></ul><ul><li>Fuel & electricity supply </li></ul><ul><li>Right sizing of motors </li></ul><ul><li>Fuel & electricity supply </li></ul><ul><li>Driver training </li></ul><ul><li>Speed governors </li></ul><ul><li>Green procurement </li></ul><ul><li>Supply chain </li></ul><ul><li>Backhaul contracting </li></ul><ul><li>Car accident reduction </li></ul>Relevant business activities
  12. 12. How it works Assess: Quantify projects benefits & identify highest priority environmental & financial performance initiatives. 3. Project Description Best Case ($M) Reasonable Case ($M) Worst Case ($M) Prob. Of Success (%) NPV Scenarios Reuse scrap materials Sell unused scrap Shared material buying $25M $5M $10M $10M $2.5M $4M $5M $1M $0 65 40 25 Driver training Speed governors Plant layout improvements $30M $10M $10M $20M $5M $8M $10M $4M $6M 70 30 25 Motion-sensitive water nozzles $10M $8M $6M 90 TOTAL BENEFITS $100M $57.5M $32M Waste GHGs Water Best Case Worst Case Environmental. Savings 10,000 10,000 5,000 2,000 2,000 0 25,000 20,000 10,000 8,000 9,000 6,000 15,000 8,000 Waste (tons) GHGs (tons of CO 2 eq.) Water (gals) <ul><li>Waste (tons) </li></ul><ul><li>GHGs (tons CO 2 eq) </li></ul><ul><li>Water (gals) </li></ul>25,000 55,000 15,000 Total Environmental Savings 4,000 23,000 8,000 Best Case Worst Case 15,000 40,000 12,000 Reas. Case Environmental & Financial performance initiatives Project: Automotive Company Example The Payne Firm, Inc. Illustrative
  13. 13. How it works GHGs Implement: Integrate initiatives into the post-acquisition management plan & share lessons learned across deal teams & funds. 4. <ul><li>Grow revenue 10% through Asia expansion </li></ul><ul><li>Reduce cost 15% through supplier negotiation </li></ul><ul><li>Invest additional 5% of sales into R&D </li></ul><ul><li>Reduce waste and management costs 5% </li></ul><ul><ul><li>Reuse scrap materials </li></ul></ul><ul><ul><li>Sell unused scrap </li></ul></ul><ul><ul><li>Shared material buying </li></ul></ul><ul><li>Reduce fuel usage and costs 10% </li></ul><ul><ul><li>Driver training </li></ul></ul><ul><ul><li>Speed governors </li></ul></ul><ul><ul><li>Plant layout improvements </li></ul></ul>Management Plan Project: Automotive Company Example Project Description Reuse scrap materials Sell unused scrap Shared material buying $10M $2.5M $4M Driver training Speed governors Plant layout improvements $20M $5M $8M TOTAL BENEFITS $49.5M Waste GHGs Waste (tons) (tons of CO 2 eq.) The Payne Firm, Inc. Projected environmental savings 6,000 6,000 3,000 15,000 15,000 10,000 Projected financial savings $M Illustrative Environmental & Financial performance initiatives Project: Automotive Company Example Illustrative
  14. 14. For more information The Payne Firm The Payne Firm, Inc. is an environmental consulting firm that provides full life cycle services to private equity sponsors to improve performance of their portfolio companies. The Payne Firm has served as the environmental deal advisor in over 175 transactions with enterprise value in excess of $100 billion. The Payne Firm is a member of the Inogen Environmental Alliance, a global network of 165 member offices in six continents with over 4,800 professionals world-wide. www.paynefirm.com The Carlyle Group The Carlyle Group is a global private equity firm with $87.9 billion of assets under management committed to 65 funds as of September 30, 2009. Carlyle invests in buyouts, growth capital, real estate and leveraged finance in Africa, Asia, Australia, Europe, North America and South America focusing on aerospace & defense, automotive & transportation, consumer & retail, energy & power, financial services, healthcare, industrial, infrastructure, technology & business services and telecommunications & media. Since 1987, the firm has invested $57.5 billion of equity in 932 transactions for a total purchase price of approximately $230.9 billion. The Carlyle Group employs more than 870 people in 19 countries. In the aggregate, Carlyle portfolio companies have more than $109 billion in revenue and employ more than 415,000 people around the world. www.carlyle.com Environmental Defense Fund (EDF) A leading national nonprofit organization, Environmental Defense Fund represents more than 700,000 members. Since 1967, EDF has linked science, economics, law and innovative private-sector partnerships to create breakthrough solutions to the most serious environmental problems. EDF has a 20 year track record of success in partnering with business. To maintain its independence and credibility, EDF accepts no money from corporate partners; generous individuals and foundations fund its work. www.edf.org .

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