Renewables IPO SeminarA changing climate for IPOs?4th April 2011Neil Matthews
The IPO VoyageWhat we will cover today:• Market conditions and outlook• Current trends in the markets• Choice of markets –...
Climatic conditionsLondon markets - 2010 in review• IPOs - Total 89 IPOs raising £10bn   (2009 = 22 / £1.7bn)   – Main Mar...
Climatic conditionsOutlook:• Market sentiment improving for IPOs after sole focus  on secondary issues in 2008/9• Investor...
Current Trends (1) – favoured listinglocations?• Hong Kong                              New York                        ...
Current Trends (2) – emerging marketsEmerging markets companies in London:– Russia – active again (particularly GDR offeri...
Choice of Markets: London• AIM:   – still reputational challenges although fundamentally a     robust and appropriately re...
What is required to join the UK’s markets?Investor expectations of an applicant are:          strong             market ap...
Preparing for the IPO (1)Key issues – corporate structuring• Creating the IPO structure• For UK companies:   – converting ...
Preparing for the IPO (2)Due diligence issues - protecting your assets• capture your assets   – make sure you own them• pr...
Preparing for the IPO (3)Other issues• optimise financing structures• pre-IPO housekeeping (e.g. any disputes,  claims, li...
The process Why does it take so long?• selecting the advisory team• legal & financial due diligence• pre-IPO restructuring...
Smoothing the way for a successful IPOTop tips• Don’t under-estimate the time  commitment needed• Plan ahead – don’t leave...
Neil MatthewsHead of equity capital markets group            Tel:       +44 (0) 845 497 4880            Mobile:    +44 (0)...
Equity Capital MarketsA selection of our recent deals
© EVERSHEDS LLP 2010. Eversheds LLP is a limited liability partnership.
Renewables IPO Seminar4 April 2010
Global leader for capital raising• World’s leading market in terms of access to international investors and capital• World...
Routes to market• The London Stock Exchange offers a range offers different routes to raise capital from  the equity marke...
Cleantech companies at a glance                                                                        Main Market    AIMN...
Cleantech sectors represented on AIM & MM                 Renewable & Alternative Energy                                  ...
Number of Cleantech companies (AIM & MM) bymarket capitalisation (£m)                  47                                 ...
IPO activity – Q1 2011                                                                                           Mkt cap  ...
IPO activity – live Intention to Floats    Date                                        Country                            ...
IPO Outlook•   Economic growth slow in developed countries, higher in emerging•   IPO activity increased during Q4 2010•  ...
Eversheds IPO SeminarPresentation by Novusmodus
   Novusmodus is a VC/Development Capital investment firm        in the renewable and cleantech sector       We are the ...
   All things to do with clean, low-carbon generation, and        the efficient delivery and usage of electricity and hea...
    Albeit independent, we have a deep relationship with         ESB            Leverage expertise within dedicated ESB ...
Bridging the Financing Gap      Between the VC and PE stages4
EU 20:20:20 Targets       $$$$$$$$$        Huge investment       €200 billion per major economy       DECC spending = 1/...
   Debt       Venture Capital       Private Equity       Infrastructure Funds       Retail Investors       Instituti...
Renewable Energy                             EDF Energies Nouvelles                                                       ...
Interest Rates* at all time                                                                                               ...
   Proven technology       Strong levels of government support         Grandfathering       Long dated       Predicta...
Renewable infrastructure assets =        higher return for same given level of risk     Risk                              ...
Access to investors                     who focus on absolute low risk-return        Deep pockets        Long arms      ...
Small sector       Just 1 GW /year of onshore wind consented in the                           UK      Offshore is risky   ...
   Government must be more thoughtful        Lower complexity        Mergers & acquisitions        Professionalise man...
Nomura Code Securities Limited What investors look for in an IPO      Eversheds Renewables IPO seminar                    ...
Important NoticeDisclaimerThis presentation has been prepared by, and is subject to the copyright of, Nomura Code Securiti...
Focus on water and efficiency, as well as renewables   Most Cleantech investment banks are focussed on renewables, partic...
Nomura Code research on public companies …                                             Page 4
… and on private VC-backed companiesThe ability to produce research from the same analysts and in the same format as liste...
Nomura’s global coverage of water, renewables and the energy-efficiency/climate change aspect is second to none           ...
Page 7
Cleantech – early stage companiesMany cleantech or environmental companies at IPO are early stage – perhaps pre-revenue, o...
Cleantech – valuation Peers, real and apparent      Investors will tend to draw comparisons with similar companies, UK a...
Cleantech – pros and consPros A strong theme, with specialist and generalist investors‟ attention      But specialists w...
Investors want: the perfect companyThey know they won‟t get a perfect company, but each defect will have a price. Common d...
Know your investors Before the IPO – find the right investors      What sort of investor should be buying into your IPO?...
After the IPO – when things go wrong• Not the rating, but the earnings      What ever the valuation basis, investors know...
After the IPO Keep communicating      You became a public company for a reason – be public      Even if you don‟t need ...
IPO companies – questions that need answers Why isn‟t someone else doing this already (if its so great)? Or, who are  you...
Pitching: Less Greenery. More GreenbacksFocus will tend to be on commercialisation – not technology orgreen credentials.  ...
What Investors like and don’t like…• More than particular sectors, investors like/dislike characteristics• Best of all, an...
Cleantech Funding and M&A conditions                                                             Trends in VC/PE, M&A and ...
Cleantech Funding and M&A conditions                                           Share of 1996-2010 VC funding by sub-sector...
Ken RumphKen Rumph joined Nomura Code in September 2009 having built Clear Capital/Noble‟s climatechange coverage between ...
Regulation andgetting the finances rightAndrew Perkins and David Wilkinson
Agenda►    Introduction to Ernst & Young►    Renewable energy market outlook►    Diversifying global portfolios►    Access...
Ernst & Young EU network of renewableenergy specialists               Transaction Advisory                     Services   ...
The need for regulatory certaintyShort term market volatility                        Long term market outlook► The threat ...
Diversifying global investments► Developing a balanced, global portfolio across multiple sectors can help reduce exposure ...
Likely funding gapFunding requirements excluding energy efficiency investments of £230 billion                            ...
Green investments – the need for new funding► Significant funding gap to reach targets► Investment barriers in offshore wi...
Agenda►   What the market is looking for in volatile times►   Financial track record►   Financial reporting procedures    ...
What the market is looking for in volatile times► Equity growth story – risk and reward► Depth and breadth of team to exec...
Financial track record – cleantech issues► Quality and period of track record► Tracking and capitalisation of development ...
Financial reporting procedures – cleantechissues              Expectations                                              Ch...
Thank you            Ernst & Young LLP            Assurance | Tax | Transactions | Advisory            www.ey.com/uk      ...
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A Renewable IPO Market - When will we see it?

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Eversheds IPO seminar that examines the challenges facing the IPO market within the clean energy sector.

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A Renewable IPO Market - When will we see it?

  1. 1. Renewables IPO SeminarA changing climate for IPOs?4th April 2011Neil Matthews
  2. 2. The IPO VoyageWhat we will cover today:• Market conditions and outlook• Current trends in the markets• Choice of markets – influencing factors• Preparing for the IPO – particular issues facing the clean energy sector• Practical tips for a successful IPO
  3. 3. Climatic conditionsLondon markets - 2010 in review• IPOs - Total 89 IPOs raising £10bn (2009 = 22 / £1.7bn) – Main Market = 46 IPOs raising £9bn (2009 = 9 / £0.9bn) – AIM = 43 IPOs raising £1bn (2009 = 13 / £0.6bn)• 2010 highlights include: – Main Market – Essar, Ocado, Betfair, SuperGroup, Flybe, AZE – AIM – EMIS Group, Halosource Inc, Ncondezi Coal – Natural resouces / energy still dominate (esp. AIM)• AIM generally out of favour; lack of good UK candidates• Slow start to 2011. Funds flow out of bonds into equities continues but recent volatility threatens IPO chances
  4. 4. Climatic conditionsOutlook:• Market sentiment improving for IPOs after sole focus on secondary issues in 2008/9• Investor preference remaining for Main Market IPOs• Our experience: – Flybe Group plc, AZ Electronics etc• AIM = will remain tough but some successes (e.g. Ilika plc)• Increasing competition from other stock markets
  5. 5. Current Trends (1) – favoured listinglocations?• Hong Kong  New York  London• Key determinants – Sizeable capital raising? – Valuation / rating? – Creation of liquidity? – Exposure/ profile raising in local jurisdiction?• Cleantech/energy …………?? …still up for grabs !!
  6. 6. Current Trends (2) – emerging marketsEmerging markets companies in London:– Russia – active again (particularly GDR offerings)– China – difficult and looking elsewhere (e.g. Frankfurt?)– India – a little patchy– Other jurisdictions
  7. 7. Choice of Markets: London• AIM: – still reputational challenges although fundamentally a robust and appropriately regulated environment. – needs more fiscal incentives / liquidity drivers to kick start it again – Nomad concerns over increasing burden on them• Main Market: Premium listing: – back in favour although highly regulated and thus compliance is expensive• Main Market: Standard listing: – limited regulation although voluntary compliance with higher standards not uncommon. Used in specific circumstances.
  8. 8. What is required to join the UK’s markets?Investor expectations of an applicant are: strong market appetite management team for the sector long term commitment from viable business plan directors/key shareholders transparency good corporate of ownership governance and accounting
  9. 9. Preparing for the IPO (1)Key issues – corporate structuring• Creating the IPO structure• For UK companies: – converting to / re-registering as a PLC – …or establish Newco and effect share exchange – careful handing – a clear steps-plan – early involvement/implementation is key• For overseas entities: – Choice of Holdco jurisdiction (drivers = tax, investor protection, settlement issues, reputation etc) – Again, early stage planning
  10. 10. Preparing for the IPO (2)Due diligence issues - protecting your assets• capture your assets – make sure you own them• protect your assets – eg patents/design rights etc – confidential information• exploit your assets – jvs/sale of IPR/licensing• remove non-core assets
  11. 11. Preparing for the IPO (3)Other issues• optimise financing structures• pre-IPO housekeeping (e.g. any disputes, claims, litigation etc)• corporate governance – strengthening the board – this takes time• financial systems/ reporting procedures?• new share/ incentive schemes.NB: identify issues at an early stage!!
  12. 12. The process Why does it take so long?• selecting the advisory team• legal & financial due diligence• pre-IPO restructuring• preparing the Prospectus / Typically - Admission Document 6 - 12• verification months• marketing - the roadshow• placing and pricing• Admission and dealings commence
  13. 13. Smoothing the way for a successful IPOTop tips• Don’t under-estimate the time commitment needed• Plan ahead – don’t leave issues until the last minute• Ensure you have adequate internal & external resource available• Pick the right advisory team• Expect some highs and lows along the way
  14. 14. Neil MatthewsHead of equity capital markets group Tel: +44 (0) 845 497 4880 Mobile: +44 (0) 776 786 3390 E-mail: neilmatthews@eversheds.com Address: One Wood Street London EC2V 7WSEversheds LLP• One of the leading mid-market ECM practices• 92 UK stock market clients (over 60 listed on Main Market)• AIM Law Firm of the Year 2008/9 & 2009/10• Member of LSE AIM Advisory Group• Acted on approx 10% of all UK public company acquisitions in last 5 years
  15. 15. Equity Capital MarketsA selection of our recent deals
  16. 16. © EVERSHEDS LLP 2010. Eversheds LLP is a limited liability partnership.
  17. 17. Renewables IPO Seminar4 April 2010
  18. 18. Global leader for capital raising• World’s leading market in terms of access to international investors and capital• World’s most diverse market in terms of international quoted companies• 3rd largest global equity market by market capitalsiation• Europe’s highly traded equity market by value traded• Supported by one of the World’s most highly experienced advisory communities 2
  19. 19. Routes to market• The London Stock Exchange offers a range offers different routes to raise capital from the equity market, each designed to appeal to different companies and investors• Three options for commercial companies: – AIM – growth market aimed at smaller and/or younger companies – unique regulatory framework – AIM focused indices available – Main Market, Premium – premium product weighted more towards established and/or larger companies – highest level of regulation applies – UK index inclusion – Main Market, Standard – lower level of regulation compared with Premium listing and AIM – useful for special situations (special acquisition vehicle, nearly eligible for Premium) – no index inclusion• Specialist Fund Market also available to funds focused at sophisticated investors 3
  20. 20. Cleantech companies at a glance Main Market AIMNumber of cleantech companies 39 80Average amount raised at admission £34m £36mTotal amount raised at admission £4,702m £4,589mTotal raised in further issues £5,292.75m £5,060.42mTotal market capitalisation £59,513,685m £51,742,221mNumber of UK companies 38 62Source: London Stock Exchange statistics and ProQuote data 31.03.2011 4
  21. 21. Cleantech sectors represented on AIM & MM Renewable & Alternative Energy 34 Energy Efficiency 37 Waste Management & Technologies 20 Environmental Support Services 20 Pollution Control 11 Water Infrastructure & Technologies 12 Financial Services 2 Electricity 3 Alternative Energy 1Source: London Stock Exchange Statistics 31.03.11, FTSE Environmental Markets Classification Systemdefinitions used where relevant 5
  22. 22. Number of Cleantech companies (AIM & MM) bymarket capitalisation (£m) 47 25 16 8 8 5 4 4 1 0-25 25-75 75-125 125-200 200- 350 350-700 700-1,000 1,000- 10,000+ 10,000Source: London Stock Exchange Statistic, and ProQuote 31.03.2011 6
  23. 23. IPO activity – Q1 2011 Mkt cap FundsDate Company Market Sector (£m) raised (£m)10 Jan-11 Hazel Renewable Energy VCT 1 Premium Equity Investment Instruments 5.4 5.410 Jan-11 Hazel Renewable Energy VCT 2 Premium Equity Investment Instruments 5.4 5.412 Jan-11 Marwyn Mngt Partners Plc Standard General Financial 6 620 Jan-11 Farglory Land Development Co Standard Real Estate Investments & Serv 131.6 131.631 Jan-11 Frontier IP Group Plc AIM Support Services 3.4 117 Feb-11 Justice Holdings Limited Standard Special Purpose Acquisition Co 900 9001 Mar-11 Octopus Titan VCT 5 PLC Premium Equity Investment Instruments 5.5 5.514 Mar-11 Duet Real Estate Finance Limited Premium Equity Investment Instruments 50 5017 Mar-11 Trap Oil Group plc AIM Oil and Gas 78.3 6023 Mar-11 Hoang Anh Gia Lai JSC PSM Diversified 38 3831 Mar-11 Top Creation Investments Ltd AIM Equity Investment Instruments 3 3 7
  24. 24. IPO activity – live Intention to Floats Date Country Mkt cap announced Company Market of origin Sector (£m)28 Feb-11 Skrill Group plc Premium UK Financial Services 415 3 Mar-11 Diverse Income Trust Premium UK Equity Investment Instrument 5010 Mar-11 Perform Group plc Premium UK Media 70014 Mar-11 Edwards Group Premium UK Industrial Engineering 1,30023 Mar-11 Etalon Group Limited Standard Russia Real Estate 31023 Mar 11 Nomos Bank Standard Russia Banks 370 8
  25. 25. IPO Outlook• Economic growth slow in developed countries, higher in emerging• IPO activity increased during Q4 2010• Moderate Q1, anticipate stronger Q2 2011• “Operating companies” return to IPO• M&A activity underpinning valuations and recycling cash for investors• Institutional investors long on cash / low interest rates / appetite for risk to deliver returns• Lack of debt / trade sales and PE secondary sales still slow• Geo-political uncertainty & oil prices 9
  26. 26. Eversheds IPO SeminarPresentation by Novusmodus
  27. 27.  Novusmodus is a VC/Development Capital investment firm in the renewable and cleantech sector  We are the adviser to ESB Novusmodus Fund LP, a €200m fund established in August 2009 where ESB is the only investor  ESB provides a unique perspective on the utility market, and direct access to engineering and sector specialist expertise  The team is based in London, Dublin, and Munich  a European focus, a global mandate1
  28. 28.  All things to do with clean, low-carbon generation, and the efficient delivery and usage of electricity and heat  €3m - €20m equity investments  Significant minority positions and board representation  5-6 year investment horizon  Open to consider co-investments with other funds2
  29. 29.  Albeit independent, we have a deep relationship with ESB  Leverage expertise within dedicated ESB teams  Provide expert skills and management support to investee companies Utility Expertise and Engineering • Carbon neutral by 2035 International Reach • c.€20bn investment program • €6.5bn asset value • International presence in over 50 Cornerstone Investor countries • 1,100 consulting engineers out of 7,0003 staff
  30. 30. Bridging the Financing Gap Between the VC and PE stages4
  31. 31. EU 20:20:20 Targets $$$$$$$$$ Huge investment  €200 billion per major economy  DECC spending = 1/3 of defence spending by 2020  DECC will be spending more than police + justice + prisons Utilities $$ Cash constrained  Focusing on large projects e.g. Offshore or nuclear  Don’t really buy the green story... Will governments really do something economically irrational?5 Investment in renewable infrastructure companies is a must
  32. 32.  Debt  Venture Capital  Private Equity  Infrastructure Funds  Retail Investors  Institutional investors6
  33. 33. Renewable Energy EDF Energies Nouvelles Generation 60 140 Share Price (£p) 120 Share Price (€) 50 100 40 80 30 60 20 40 10 20 N ov-06 Jul-07 Mar-08 N ov-08 Jul-09 Mar-10 N ov-10 Dec-06 Aug-07 Apr-08 Dec-08 Aug-09 Apr-10 Dec-10 Iberdrola Renovable EDP Renováveis 7 10 6 Share Price (€) Share Price (€) 8 5 4 6 3 4 2 1 2 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-107
  34. 34. Interest Rates* at all time Inflation** high and rising low 8.0% 6.0% 3-mth LIBOR (U K) Change over LTM 5.0% 6.0% 4.0% 4.0% 3.0% 2.0% 2.0% 1.0% 0.0% 0.0% Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 FTSE 100 – Same level as 5 years ago 7,000 6,000 5,000 4,000 3,000 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-118 * 3-month UK BBA LIBOR * *All items excluding mortgage interest payments and indirect taxes
  35. 35.  Proven technology  Strong levels of government support  Grandfathering  Long dated  Predictable  Inflation-linked The perfect investment!9
  36. 36. Renewable infrastructure assets = higher return for same given level of risk Risk Toll Road Airport Water Biomas s PFI Wind Solar10 Source: Richard Nourse Return
  37. 37. Access to investors who focus on absolute low risk-return  Deep pockets  Long arms 8-10% nominal return is amazing compared to other investments  Strong yield  Low risk11
  38. 38. Small sector Just 1 GW /year of onshore wind consented in the UK Offshore is risky No real track record Biomass is risky Sustainability issues Government risk FIT row back not a shining example Complex drivers Each country has its own regulations / support Developing thinking Green deal is massive but who takes the risk?12
  39. 39.  Government must be more thoughtful  Lower complexity  Mergers & acquisitions  Professionalise management  Private placement? Like USPP13
  40. 40. Nomura Code Securities Limited What investors look for in an IPO Eversheds Renewables IPO seminar 4th April 2011 Ken Rumph Nomura Code kcr@nomuracode.com 0207 776 1242 © Nomura International plc
  41. 41. Important NoticeDisclaimerThis presentation has been prepared by, and is subject to the copyright of, Nomura Code Securities Limited (“Nomura Code”). No part of this presentation may bereproduced, transmitted, stored in a retrieval system or translated in any other language in any form, by any means without the prior written consent of NomuraCode.This presentation is confidential and has been furnished to the intended recipient solely for such recipient‟s information and private use and may not be referredto, disclosed, reproduced or redistributed, in whole or in part, to any other person.This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Thisinformation has not been independently verified by Nomura Code. No representation or warranty as to this presentation‟s accuracy, completeness or correctnessis made and no reliance should be placed on the accuracy, completeness or correctness thereof. The information contained, and any opinions expressed, in thispresentation are subject to change at any time and Nomura Code is under no obligation to inform the intended recipient or any other person of any such change.Nomura Code accepts no responsibility or liability whatsoever in relation to this presentation (including for any error contained in this presentation or in relation tothe accuracy, completeness or correctness of this presentation or in relation to any projections, analyses, assumptions and/or opinions contained herein nor forany loss of profit or damages or any liability to a third party whatsoever arising from the use of this presentation). The exclusion of liability provided herein shallprotect Nomura Code, its officers, employees, agents, representatives and/or associates in all circumstances.This presentation is not intended to form the basis of any investment decision and does not constitute or form part of any offer to sell or an invitation to subscribefor, hold or purchase any securities or any other investment, and neither this presentation nor anything contained herein shall form the basis of or be relied on inconnection with any contract or commitment whatsoever. This presentation is not, and should not be treated or relied upon as investment research or a researchrecommendation under applicable regulatory rules.Nomura Code, unlike other members of the Nomura Group, is a sector specialist and, due to its size and structure, its analysts may represent the interests of thefirm or of companies referred to in its research. For example, analysts may be involved in marketing activities to solicit corporate finance business or attendroadshows to market new issues by corporate clients. As a result, Nomura Code does not hold its research out as being impartial. This research is non-independent and is classified as a Marketing Communication under the FSA‟s rules. As such it has not been prepared in accordance with legal requirementsdesigned to promote the independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investmentresearch in COBS 12.2.5. However, Nomura Code Securities has adopted internal procedures which prohibit analysts from dealing ahead of the publication ofnon-independent research, except for legitimate market making and fulfilling clients‟unsolicited orders.Nomura Code Securities Limited is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. Page 2
  42. 42. Focus on water and efficiency, as well as renewables Most Cleantech investment banks are focussed on renewables, particularly solar… … but Nomura has a global focus on efficiency  Investors prefer the economic and regulatory drivers for efficiency, vs. the subsidy- dependence of solar PV in particular  Process efficiency stocks in London and elsewhere have performed well  Smart grids (power and water) attracting attention from investors and corporates Water is a growing theme for investors  Shortage of fresh water (desalination, recycling, efficiency/leaks)  Waste water treatment  Water purification  Overlap with agricultural/irrigation demand – another theme for investors  Fitting in with these trends is important for smaller/earlier stage companies to gain attention from investors or attract premiums in M&A Page 3
  43. 43. Nomura Code research on public companies … Page 4
  44. 44. … and on private VC-backed companiesThe ability to produce research from the same analysts and in the same format as listed company equity research is a differentiating factor, adding credibility and familiarity for investors Page 5
  45. 45. Nomura’s global coverage of water, renewables and the energy-efficiency/climate change aspect is second to none Page 6
  46. 46. Page 7
  47. 47. Cleantech – early stage companiesMany cleantech or environmental companies at IPO are early stage – perhaps pre-revenue, often not yet profitable. In these circumstances, investors will expect, and benefit from Milestones, past and future  Provide a measure of performance, financial, operational or technical  Past progress provides a sense of development and momentum  Ideally future milestones should be well spaced (to provide regular indications that the company is on schedule) and have room for (inevitable) delays Management skills  A business may be young, but (some of) its management should display experience of success in similar early stage businesses  Investors expect management to be enthusiastic but realistic Funds raised for acquisitions  If you‟re raising funds to acquire assets or businesses  Why will you get a better deal than other buyers?  Why are the sellers selling? Page 8
  48. 48. Cleantech – valuation Peers, real and apparent  Investors will tend to draw comparisons with similar companies, UK and elsewhere  Your broker should identify the types of company investors will compare your company with – not necessarily by industry sector, but by stage of development  Some sub-sectors are well defined and have many peers – eg solar – in which case you will meet more experienced investors and tend to define yourself versus that peer group  Other companies will find themselves „alone‟ – Modern Water, Zenergy and SeaEnergy are all examples (tomorrow) – more general comparisons are made, and more work is needed in educating investors about the sector  Investors may identify peers that you don‟t accept – explain why  Your competitors are not your (investment) competitors Past funding sets a benchmark  Previous share transactions or funding rounds set a benchmark  If investors see that a private funding round occurred recently at a given price, they will generally be reluctant to pay a much higher price Page 9
  49. 49. Cleantech – pros and consPros A strong theme, with specialist and generalist investors‟ attention  But specialists want the same things as generalists – a good investment case  Generalists are wary of (past) hype and overvaluation  „Saving the world‟ alone will not be a sufficient case for investment  Making money alone will also not be sufficient (in the environmental, cleantech space)Cons „Cleantech‟ or environment is not a well-defined sector  Investors will want to understand the specific drivers for a business  Most investors in small- and mid-sized IPOs are generalists, so education about the drivers and the business is always needed  Is this a regulation-driven business, supported by subsidies, or influenced by market prices (carbon, fossil fuels) – each will have its specifics and vulnerabilities Page 10
  50. 50. Investors want: the perfect companyThey know they won‟t get a perfect company, but each defect will have a price. Common defects are: Existing shareholders are selling  For entrepreneurs, this is understandable  Investors will expect the entrepreneur to retain a stake  And sales at IPO are better than later – a lock-in would be normal  VCs are also expected to sell in time  Willingness to accept PE LBO-type exits is limited (currently) Funds raised to reduce debt  Investors will accept some debt reduction, but prefer companies to raise funds to grow the value of the business Lack of a complete or conforming management/board  Investors expect a CEO, CFO, Chairman, independent directors  The roadshow team should involve operations and finance Page 11
  51. 51. Know your investors Before the IPO – find the right investors  What sort of investor should be buying into your IPO?  It might seem desirable to take anyone‟s money, but the consequences of having the wrong kind of investor, or investors with the wrong expectations will be bad for your company‟s strategy and share price  Many large institutions have many different potential buyers of your shares – different fund managers, different funds, different locations and business units – expect to meet more than one individual in many firms  Your broker should help you navigate this terrain (before and after the IPO), describing the type of fund manager, providing feedback Shareholders will sell  As fund managers change their views, the company changes, individuals change, the fund needs to raise cash, or the holding becomes too large (or small) – don‟t be surprised or hold grudges  Continue to market your company to new (and previous) shareholders – the best recipe for a good share price is new buyers to take stock from inevitable sellers (insiders included) Page 12
  52. 52. After the IPO – when things go wrong• Not the rating, but the earnings  What ever the valuation basis, investors know from experience with small- and mid-cap companies, that disappointing performance after IPO comes far more often from failure to meet forecasts than from paying the wrong valuation of those forecasts (larger mature companies may differ)  What is the basis of the earnings forecasts investors have read in broker research (which will determine „consensus‟ expectations) and what are the risks• When things go wrong  Investors are realistic  But they want to know as early as possible when things go wrong  Handle inevitable problems well and you will benefit  Early disclosure builds confidence and support  Missing expectations significantly on the upside also gives an impression of riskiness Page 13
  53. 53. After the IPO Keep communicating  You became a public company for a reason – be public  Even if you don‟t need to raise capital now, a languishing share price can be a vulnerability or present an image of decline  Be aware of what „peers‟ are doing, saying, how they are performing  Communication is not just results, or even „news‟  Expect to visit UK investors twice a year at least, in person  Visits to sites, conference presentations, etc also count Investors like to support successful companies with more money  In general, small- and mid-cap managers want small companies to grow – both organically, but often via secondary equity issues, provided the business is going to plan  Investors generally like to invest more money for the right reasons (growth) but not for the wrong reasons („we used up the first lot‟) Page 14
  54. 54. IPO companies – questions that need answers Why isn‟t someone else doing this already (if its so great)? Or, who are your competitors, and how do they compare? Why will customers buy your product/service? Explain the economic value proposition! How do you (and hence the investors) make money? Explain your business model! Why are you selling (part of) your company? How long are VCs, directors locked up for? What policies, subsidies, prices affect your business? With what sensitivity What worries you? What could go wrong? What are the upside/downside risks? (When) will there be value-enhancing newsflow? Page 15
  55. 55. Pitching: Less Greenery. More GreenbacksFocus will tend to be on commercialisation – not technology orgreen credentials.  Who is going to buy your product/service?  Why? At what price versus competition? What are the economics for the customer?  How will you find and convert your customer? Do you understand the distribution channels, and the motives of the participants? Why will they buy from you, a small early stage company?  Market segmentation may be appropriate? Niche sales first, versus the mass market?  Who is your head salesperson?  Timetables – enthusiastic but realistic Page 16
  56. 56. What Investors like and don’t like…• More than particular sectors, investors like/dislike characteristics• Best of all, an economic case that doesn’t rely on external help• Regulations preferred to subsidies: due to widespread public spending cuts and bad experiences in Spain, investors are wary of reliance on subsidies (eg renewable tariffs, etc) and turning towards regulation-driven sectors  E.g. REACH, Landfill tax/targets, fuel efficiency, product bans  Or businesses where any subsidy is privately funded• Global statistics on investment are often mis-leading:  ‘VC’ investment is mixed with private equity/infrastructure finance – investing in a new waste treatment technology company is pure cleantech investment, financing a windfarm or a landfill gas or waste treatment plant may be more utility/infrastructure  Sector is hard to define – more efficient coal fired power stations and insulating lofts are cleantech in emissions reduction terms. Page 17
  57. 57. Cleantech Funding and M&A conditions Trends in VC/PE, M&A and IPOs in Cleantech $200bn $180bn VC/PE, IPOs and M&A all show similar $160bn VC/PE $140bn M&A patterns, tentative signs of recovery during $120bn IPOs 2010 $100bn Figures often include utilities or general $80bn $60bn industrials as cleantech $40bn $20bn $0bn 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ytd VC vs. PE investment Venture Capital & Private Equity flows are $60bn large $50bn But dominated by major corporate buyouts PE - buy-outs, etc $40bn VC-type funding is a small portion PE - expansion capital $30bn VC $20bn $10bn $0bn 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Page 18 ytd Page 18
  58. 58. Cleantech Funding and M&A conditions Share of 1996-2010 VC funding by sub-sector Solar Other 27% Biomass & 6% Waste 4% Wind 4% Fuel Cells EE transport 5% 11% Power Storage EE built 8% environment 10% Biofuels 10% EE digital EE supply energy EE industry 8% side 2% 5%  Although „Solar‟ has been a large part of VC funding, this has been dominated by solar PV utilities/park developers, and by solar PV technology companiesSource: Bloomberg New Energy Finance Page 19
  59. 59. Ken RumphKen Rumph joined Nomura Code in September 2009 having built Clear Capital/Noble‟s climatechange coverage between 2007 - 2009.Ken specialises in energy and resource efficiency, including water, waste and recycling.Ken graduated in Natural Sciences from Trinity, Cambridge and had held roles as a fundmanager and buy-side analyst at Scottish Amicable and as a sell-side global building materialsanalyst at UBS and Merrill Lynch.Repenting his emissions-intensive ways, Ken undertook a masters in EnvironmentalManagement at Cranfield in 2006/7 and is a member of the Institute of EnvironmentalManagement and Assessment Page 20
  60. 60. Regulation andgetting the finances rightAndrew Perkins and David Wilkinson
  61. 61. Agenda► Introduction to Ernst & Young► Renewable energy market outlook► Diversifying global portfolios► Accessing capital Andrew Perkins Partner Energy and Environmental Infrastructure Advisory Ernst & Young aperkins@uk.ey.com Tel +44 (0)11 7981 2325 Mob: +44 (0)7799 072523Page 2
  62. 62. Ernst & Young EU network of renewableenergy specialists Transaction Advisory Services UK global centre of Tax Assurance renewable expertise Investment BankingPage 3
  63. 63. The need for regulatory certaintyShort term market volatility Long term market outlook► The threat of cuts in European feed in tariff’s ► Fundamental drivers of renewable energy have created uncertainty amongst the investment still remain: investment community e.g. Spain, UK, Italy ► Increasing energy requirements► Arguably only Spanish Solar was retrospective ► EU 2020 renewable energy targets► Returns on sovereign risk often makes ► Security of supply renewables look expensive ► EU GHG emission limits► Uncertainty due to new legislative requirements e.g. UK Electricity market reform ► Consumer demand► Fluid planning regimes and long lead times ► Transparent, long term policies can stimulate make feed in tariff allocation uncertain investment and the development of global supply chains e.g. German feed in tariff regime► Lack of a universal carbon price to support renewables investment ► Innovative policies to encourage domestic supply chain growth e.g. Tariff premium in TurkeyPage 4
  64. 64. Diversifying global investments► Developing a balanced, global portfolio across multiple sectors can help reduce exposure to policy and individual country market risk► Investment risk decreases with market maturity as additional benefits are realised e.g. Jobs growth, development of manufacturing bases► Tailoring investment to resource availability may hedge against market volatility e.g. UK offshore wind High Global component manufacturer ManufacturingPortfolio Global investmentdiversification project portfolio Single country portfolio of projects Single country Single project Low Low Risk Profile High Page 5
  65. 65. Likely funding gapFunding requirements excluding energy efficiency investments of £230 billion 300 250 250 236 Capital expenditure (£ billion) 222 206 200 190 Utilities funding 173 156 Bank debt 150 140 124 109 Pension funds 94 and insurance 100 72 Funding gap 54 50 35 18 4 - 201 201 201 201 201 201 201 201 201 201 202 202 202 202 202 202 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 ► Some estimates of capital expenditure required of UK PLC for energy efficiency of £230 billion ► This doubles the requirement to £450 billion ► Only £50-80 billion funding available from current sources: ► Utilities (£30 – 45 billion), ► Project finance debt and equity (£20 - £22 billion) ► Infrastructure funds (£7 – 15 billion) ► Funding gap of £330 - £360 billion 6
  66. 66. Green investments – the need for new funding► Significant funding gap to reach targets► Investment barriers in offshore wind generation, carbon capture (&) storage, energy efficiency and micro-generation► Capital needs to be mobilised through a variety of structures, risk and financial products► Other issues for consideration in ► Flexibilityof funds ► Competitiveness of green investment opportunities ► Risk of investments ie how proven is the technology ► Time taken to access funds► Significant funds are needed for the large energy generating infrastructure and its enabling components 7
  67. 67. Agenda► What the market is looking for in volatile times► Financial track record► Financial reporting procedures David Wilkinson Partner Domestic IPO Leader Ernst & Young dwilkinson@uk.ey.com Tel +44 (0)207 951 2335 Mob: +44 (0)7774 741 277Page 8
  68. 68. What the market is looking for in volatile times► Equity growth story – risk and reward► Depth and breadth of team to execute► Financial track record to support the story► Quality of governance and financial reporting procedures 9
  69. 69. Financial track record – cleantech issues► Quality and period of track record► Tracking and capitalisation of development costs► Identifying components of infrastructure and impairment testing► Accounting implications of funding structure► Accounting for emissions allowances and incentive schemes► Embedded derivatives in power sales and purchase contracts► Accounting for complex investment structures 10
  70. 70. Financial reporting procedures – cleantechissues Expectations Challenges ► IFRS budgeting, forecasting ► Forecasts dependent upon and working capital reporting project milestones ► Effective prospects ► Young businesses without management deeply embedded processes ► Effective monitoring and ► Sales and operational priorities reporting on controls ahead of controls ► Appropriate corporate ► Remediation of FRP requires governance architecture time ► Process for disclosure of timely ► Underestimation of time and key information to the market effort to achieve goalsPage 11 25 March 2010 Financial Reporting in the IPO Process
  71. 71. Thank you Ernst & Young LLP Assurance | Tax | Transactions | Advisory www.ey.com/uk The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London SE1 2AF. © Ernst & Young LLP 2011. Published in the UK. All rights reserved.

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