Robeco Sustainable Arm Seeks 'Clean Growth'

Sep 19 2012 | 2:37pm ET

If you hear “clean tech” and think Solyndra, Craig Cummins wants you to think again.

“This is a bit of a problem,” says Cummins, a senior associate at SAM, the sustainable-investment arm of Dutch asset manager Robeco, “this mixing up solar or renewable energy and the term ‘clean tech,’ because the majority of the activity in the clean tech space is energy-related, but that’s not only renewable energy.”

Cummins, who joined SAM in 2006 from the California State Teachers Retirement System, works in the firm’s clean-tech private equity team—SAM also offers asset management, indices and sustainability benchmarking services, and as of June had US$11.5 billion in assets under management. He’s especially keen on a space he calls "clean growth." In SAM’s lexicon, that refers to companies that are “profitable, fast-growing and have a solid customer base.” What it does not refer to, according to a new SAM study, "From Venture to Growth in Clean Tech Private Equity," is “unproven breakthrough technologies whose commercial viability is still unknown.”

“There are a lot of interesting companies and technologies in this clean growth space, especially technologies that are resource efficient, that provide solutions to the energy, water utilities and transportation industries, and the food and agriculture sectors,” Cummins says. “I think they are doing well and will continue to do well, because there is demand. There’s only so much arable land on this planet and if the population continues to grow and become more wealthy, people are going to consume more. The world needs to come up with more solutions and products that can somehow sustain that population and consumption pattern or figure out how to make consumption less resource intense.”

Mergers & Acquisitions

SAM, which has about 100 employees, is not alone in seeing value in clean tech.

“Resource efficiency and environmental footprint reduction have become a major strategic focus in almost every major industry,” Cummins says. As a result, according to SAM's study, a growing list of multinational corporations are “developing, adopting or acquiring proven clean-tech solutions.” That list includes Veolia Environment, Intel Corp., Google Inc., Wal-Mart Stores, Nestlé and the Coca-Cola Co. It also includes a number of leading industrials companies which have been particularly active in the clean tech mergers and acquisitions space: European energy management giant Schneider Electric, for example, has snapped up 20 smart grid and energy efficiency firms since 2006, General Electric acquired 15 clean tech firms over the same period and the Swiss power and automation giant ABB and Germany’s Siemens each made 12 acquisitions.

Target companies have included Wind Tower Systems, a provider of “novel wind tower constructions” acquired by GE in 2011, and eMeter, a smart metering solutions provider that was one of Siemens’ only 2011 acquisitions. The German firm picked up the pace of its clean tech purchases in 2012, however, acquiring energy consulting and management company Pace Global, wastewater treatment technology provider Cambridge Water Technologies and RuggedCom, a listed manufacturer of rugged smart grid networking equipment.

Cummins sees the involvement of firms like Schneider and Siemens as the “mainstreaming” of the clean tech space, adding that it “supports our rationale for why we like to focus on this investment.”

“We see the M&A market as a key exit market for investors in this clean tech or clean growth space, which is something that we’ve observed over the last number of years and we expect that this trend will remain,” Cummins says. “In 2011, we saw 121 disclosed transactions, which totaled US$41.6 billion, and there were also an additional 335 M&A transactions in 2011 that didn’t disclose the amount, so we do expect that this US$41.6 billion is actually larger.”

How SAM Plays It

Private equity investments in clean tech companies—including majority stake investments, takeovers or private investment in public equities deals—totaled US$12.3 billion in 2011 (US$35.6 billion since 2001), according to SAM’s study. Since 2005, more than 350 clean-tech companies have gone public, raising US$58 billion, and although the market slowed in 2011, after record activity in the fourth quarter of 2010, initial public offerings raised US$10.5 billion last year.

Cummins says SAM’s approach to the clean growth space is through both primary and secondary private equity investments and through director investments in clean-tech firms. In the first case, that means investing in "a fund that’s just being established, that would then invest into 10 to 20 companies in a specific geographic region.” With secondary positions, they become limited partner in funds, acquiring stakes after the fund has closed. Direct investments, he said, are undertaken only as co-investments with managers they’ve already invested with.

“On the primary side, we’re looking for established managers that have demonstrable track records and, in particular, that have experience in the energy and in the clean-tech sectors," Cummins says. "On the company or co-investment side, we’re looking for companies that have significant revenues, that have customer attractiveness or a solid customer base, meaning that, whatever technology, product or service that they’re offering, customers are actually buying it. And we also are particularly interested in companies that are cash-flow positive or profitable. On the co-investment side also we like our managers to focus on this clean-growth segment.”

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