European Clean Energy Investment Guide 2012

ThoughT leadership
Planning an Exit
8
Turquoise international limited
Turquoise International (Turquoise) is a specialist merchant bank for energy and the
environment. Established in 2002, Turquoise offers corporate finance advisory and fund
management services. Turquoise is also a founding member of Turquoise Capital LLP, a
seed-stage investor, and acts as fund manager or adviser to a number of other funds and
investors. For more information about Turquoise and associated companies, please refer to
www.turquoiseassociates.com
This article explores the key issues involved in achieving successful exits including a case study
of Controlled Power Technologies, a company with which Turquoise has been involved since
2007 as a founder investor and corporate finance adviser.
Exits are the issue
Ian Thomas
Turquoise International
Limited
Most venture capital and private equity investors in
European cleantech would say that the greatest challenge
facing the sector is poor overall investment returns. Within
this, many would identify a lack of profitable exits as the
key underlying issue. The more obvious explanations
for this include the relative immaturity of the sector,
regulatory uncertainty, a lack of appetite in public markets
for clean energy IPOs and the financial crisis. Whilst these
macro factors are certainly relevant, a significant part of
the problem lies at the micro level, specifically a failure to
conceive and execute early enough a viable exit strategy for
each individual investment.
Preparation starts on day one
In a few cases, success will generate its own exit
opportunities. Some companies are so obviously unique
and/or valuable that they have the option to either IPO,
“ A significant part of the problem lies at the micro
level, specifically a failure to conceive and execute
early enough a viable exit strategy for each
individual investment.
”
Francis Wright
Turquoise International
Limited
be taken over at a premium or raise capital and build
themselves into a blue chip enterprise. The vast majority,
however, require a defined exit plan and the capability to
make it happen. And the broad outlines of that plan need
to be established at the outset as it impacts on so many
critical aspects of the business, including commercial
strategy, funding requirements and management
recruitment.
Investors are all too familiar with companies in the
cleantech sector that have a (sometimes great) solution
to a problem that either doesn’t exist or which no-one
will pay to solve. Equally, companies sometimes have a
clearer and more accurate vision of the market place than
investors. In either case, understanding the underlying
drivers behind a business (at least one with external
investors) must involve identifying the parties who have,
or will have in the future, an interest in acquiring it.
Whilst our view is that trade buyers do, and will continue
to, account for the majority of that interest, financial
investors (whether private equity or the IPO market)
should not be ignored.
Over time, there may be several potential exit points for
a business, each with different challenges and, crucially,
valuations. Company owners and managers should be
clear at the outset about the level of reward they are
seeking and the risk they are prepared to assume to
realise that goal. This will have a significant impact on
business strategy, fundraising and timing of exit. At any
point in time, shareholders should be able to answer the