This week, one year ago, it was announced that ABB had acquired Epyon, a developer of fast-charging technology for electric vehicles. Following on from BASF’s acquisition of Inge, Alinda’s acquisition of agri.capital and Samsung’s of Liquavista, the M&A wave of venture-backed European cleantech companies we’d all been waiting for seemed to be happening. A year on – we are still waiting. It proved a false dawn, but surely, actually, some kind of a postponed dawn.
We have spent some weeks, with Richard Cave-Bigley as our project lead, analysing the state of the market and discussing this stand-off between potential buyers and sellers with many corporate representatives (in both M&A and venturing teams), venture firms, Limited Partners, and other market agents (such as lawyers, brokers and corporate finance advisors).
Here are some of our key impressions, detailed in a fuller research report we have released to our i3 subscribers today:
Something has to give soon (the title of the report). Many cleantech venture funds, with 2005-2007 vintages are in their divestment periods, with many more following on close behind. Such fund managers are trying to strike a delicate balance. On the one hand, they wish to time exits to achieve best valuations which will tend to mean waiting for more confidence and stability than exists in today’s macro-economic and geo-political environment. On the other, they need to placate their limited partners and achieve some exits to boost their follow-on fundraising.
Europe has a strong core of corporate buyers for cleantech companies, principally driven by its strong industrial heritage. These “blue chips” have been actively buying more mature and low risk cleantech companies with only a sprinkling of venture-backed businesses acquired to date.
There are signs that appetite for venture-backed businesses is increasing as Europe’s blue chips continue to build more “open innovation” models. Nevertheless, commercial proof-points and significant (>EUR10m revenue) will continue to be a pre-requisite for most corporate acquirers.
Indications suggest that, in the nearer-term, cleantech acquisition activity of venture-backed businesses is likely to be most active within the chemicals, materials, renewable energy, and energy efficiency sectors.
To date, there have been a limited number of venture capital exits to private equity buyout funds, but this could also increase in the near term.
Whilst proximity plays a strong role in many of the acquisitions made, we expect to see some growth in cleantech buyers from so-called emerging markets.
Indicators on both the supply and the demand sides support the argument that we will see a marked increase in the number of acquisitions of venture-backed cleantech companies in the coming 12 to 36 months, albeit with a wide range of results. The more successful will be those who can create tension and interest between a wide pool – from strategic acquirers across a range of industries and geographies, from private equity buyers and, dare I say it, perhaps even (one day) from public equity investors.