Wednesday, May 30, 2018

Caisse and OTPP Invest in Energy Service?

Benefits Canada reports, Caisse, Teachers’ acquire Germany-based energy service provider:
The Caisse de dépôt et placement du Québec and the Ontario Teachers’ Pension Plan are part of a consortium of investors acquiring global energy service provider Techem GmbH.

Joined by private equity firm Partners Group and Techem’s management team, the consortium is buying the Germany-based company from Macquarie European Infrastructure Fund 2, which acquired it in 2008. The transaction, which is expected to close in the third quarter of 2018, values Techem at 4.6 billion euros, according to a press release.

“Energy efficiency, which is at the centre of Techem’s offering, is key to building a sustainable future,” said Stéphane Etroy, executive vice-president and head of private equity at the Caisse, in the release. “Given CDPQ’s desire to support the transition to a low-carbon economy, investing in Techem is a very attractive opportunity for us. Techem’s business model positions it to benefit from growing urbanization and demand for housing energy efficiency over the long term. We are confident that together with Techem’s solid management team, Partners Group and Ontario Teachers’, the company will continue on its path of success.”

Techem’s energy business provides services and devices for the metering and billing of energy and water, plus device sales, rental and maintenance. In addition, it delivers heat, cooling, flow energy and light, as well as the planning, set-up, financing and operation of energy systems and energy monitoring and controlling services.

Following the acquisition’s close, the consortium will work with Techem’s management team to support the company’s development in existing markets and expand its presence geographically.

“Techem is a well-positioned business that looks set for continued domestic and international growth,” said Jo Taylor, senior managing director, international at Ontario Teachers’. “It serves the growing, global need for energy conservation and empowers users in multi-occupancy properties to have greater control over their own energy consumption by providing accurate billing.

“Ontario Teachers’ has a strong track record in the energy and infrastructure sectors, as well as significant experience in the sub-metering space and we are delighted to partner with Techem’s innovative management team and with Partners Group and CDPQ.”
The Caisse and Ontario Teachers' put out a press release on Friday, Partners Group to lead consortium including CDPQ and Ontario Teachers' in acquisition of Techem, a global market leader in energy sub-metering services:
Partners Group, the global private markets investment manager, is leading a consortium of investors in the acquisition of Techem GmbH ("Techem" or "the Company"), a global market leader in the provision of heat and water sub-metering services. Partners Group, which will invest on behalf of its private equity and infrastructure clients, will be joined in the acquisition by Caisse de dépôt et placement du Québec ("CDPQ") and Ontario Teachers' Pension Plan ("Ontario Teachers'") as well as Techem's management team. The consortium is acquiring Techem from Macquarie European Infrastructure Fund 2, which acquired 100% of the Company in 2008. The transaction, which is expected to close in the third quarter of 2018, values Techem at an enterprise value of EUR 4.6 billion.

Founded in 1952 and headquartered in Eschborn, Germany, Techem caters to a global client base of real estate operators and private home owners from its 150 branches in more than 20 countries. Its principal Energy Services business provides services and devices for the metering and billing of energy and water, plus device sales, hire and maintenance. In addition, its Energy Contracting business delivers heat, cooling, flow energy and light, as well as the planning, set-up, financing and operation of energy systems and energy monitoring and controlling services. Techem is the market leader in Germany, the largest sub-metering market in the world, as well as in an additional 13 European markets. Techem solutions today account for 6.9 million tons of emission savings in CO2 per year, thus contributing to the ambitious global climate protection objectives. In the 2016/17 financial year, Techem's 3,640 employees serviced 11 million apartments worldwide, recording sales of EUR 782.7 million.

Following the close of the acquisition, Partners Group together with CDPQ and Ontario Teachers' will work with Techem's management team, led by Frank Hyldmar, to support the development of the Company in existing markets and expand the Company’s presence geographically. One value creation initiative will focus on the introduction of new technologies to Techem's strong, existing platform and installed base to enhance the customer experience. There will also be a continued focus on customer services and quality excellence programs as the Company grows.

Frank Hyldmar, CEO of Techem, comments: "A decade after delisting from the Frankfurt Stock Exchange, Techem can show a solid track record of growth. However, even with our market-leading position today, we believe there is plenty of future growth potential for our Company and look forward to working with Partners Group, an experienced private equity and infrastructure investor, as well as its strategic partners CDPQ and Ontario Teachers', to realize our ambitions and deliver an exceptional service to our customers around the world."

Jürgen Diegruber, Partner, Private Equity Europe, Partners Group, adds: "Techem is a market leader in a highly-regulated industry with high barriers to entry and strong tailwinds. With increasing global awareness of energy usage, Techem's products and services are a key element of the fight against energy waste, enabling heating and energy supplies to be managed in a more precise and sustainable manner. We look forward to working with Frank Hyldmar and his talented team, as well as with our partners CDPQ and Ontario Teachers', to expand Techem's market-leading position."

Stéphane Etroy, Executive Vice-President and Head of Private Equity, CDPQ, says: "Energy efficiency, which is at the center of Techem's offering, is key to building a sustainable future. Given CDPQ's desire to support the transition to a low-carbon economy, investing in Techem is a very attractive opportunity for us. Techem’s business model positions it to benefit from growing urbanization and demand for housing energy efficiency, over the long term. We are confident that together with Techem's solid management team, Partners Group, and Ontario Teachers', the company will continue on its path of success."

Jo Taylor, Senior Managing Director International, Ontario Teachers', comments: "Techem is a well-positioned business that looks set for continued domestic and international growth. It serves the growing, global need for energy conservation and empowers users in multi-occupancy properties to have greater control over their own energy consumption by providing accurate billing. Ontario Teachers' has a strong track record in the energy and infrastructure sectors, as well as significant experience in the sub-metering space and we are delighted to partner with Techem’s innovative management team and with Partners Group and CDPQ."

About Partners Group

Partners Group is a global private markets investment management firm with over EUR 62 billion (USD 74 billion) in investment programs under management in private equity, private real estate, private infrastructure and private debt. The firm manages a broad range of customized portfolios for an international clientele of institutional investors. Partners Group is headquartered in Zug, Switzerland and has offices in Denver, Houston, New York, São Paulo, London, Guernsey, Paris, Luxembourg, Milan, Munich, Dubai, Mumbai, Singapore, Manila, Shanghai, Seoul, Tokyo and Sydney. The firm employs over 1,000 people and is listed on the SIX Swiss Exchange (symbol: PGHN) with a major ownership by its partners and employees. www.partnersgroup.com

About Caisse de dépôt et placement du Québec

Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at December 31, 2017, it held $298.5 billion in net assets. As one of Canada's leading institutional fund managers, CDPQ invests globally in major financial markets, private equity, infrastructure, real estate and private debt. For more information, visit cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.

About Ontario Teachers'

The Ontario Teachers' Pension Plan (Ontario Teachers') is Canada's largest single-profession pension plan, with $189.5 billion in net assets at December 31, 2017. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an average annualized rate of return of 9.9% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 323,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
So what is this deal all about? In my last comment, I discussed how PSP is ramping up direct private equity deals by leveraging off its external partners to gain access to large co-investment deals.

I even mentioned Stephane Etroy and the Caisse's private equity group are also going direct in PE, looking at doing more co-investments to lower fees as they scale up the private equity portfolio.

This is a perfect example of a beautiful co-investment with Partners Group, one of Europe's leading asset managers in private markets (remember, on co-investments, pensions pay no fees and they're large, scalable deals but to have access to them, they need to invest in the funds of their partners which in this case is Partners Group and there, they pay big fees).

Back in 2002, when I was allocating to external directional hedge funds at the Caisse, Partners Group was running a managed account platform of hedge funds offering investors full liquidity and transparency.

Along the way, they figured out that the big money (big fees) isn't in hedge funds but private equity, real estate and infrastructure and wisely decided to shift their attention to private markets.

Now they're the Blackstone of Europe. They serve over 1,000 institutional investors worldwide "who seek superior investment performance through private markets for their more than 100 million beneficiaries". They have USD 74 billion in assets under management and more than 1,000 professionals across 19 offices worldwide.

Both Ontario Teachers' and the Caisse have a long relationship with Partners Group so when this co-investment opportunity came up to partner up with them and Techem's management team for this deal, they jumped on it.

The deal facilates a management buy-in which ensures alignment of interests and the expertise to grow this company to the next level are there.

I personally love these type of deals in private equity. You have a great partner in Partners Group, the Caisse and Ontario Teachers' know each other very well, and you have a management buy-in in a company set to grow nicely over many years.

It just doesn't get any sweeter than this.

Of course, the devil is in the details. The deal values the German metering company at an enterprise value of 4.6 billion euros ($5.4 billion) which is no small chunk of change (hence why it's a consortium buying it) but the Caisse, OTPP and its partners surely have a value creation plan to unlock more value over the coming decade (this isn't a quick flip).

Also, keep in mind both the Caisse and OTPP take ESG investing very seriously and this deal is another step in the right direction to support the transition into a low-carbon economy while they make the requisite long-term returns to fulfill their fiduciary duty.

Go back to read my comment on Canada's pensions betting on industrial innovation where I discuss Ontario Teachers' financing deal in Stem, Inc., an artificial intelligence-powered energy storage company headquartered in California.

There too, Teachers' teamed up with Activate Capital Ltd. and Temasek Holdings.

That deal fell under the mandate of the infrastructure group whereas this deal falls under private equity (it doesn't really matter, it's a private market deal with  a long investment horizon).

Below, the heating cost allocation according to Techem. You have to watch this clip on Vimeo here if it doesn't load below.

By the way, this is the future of energy service and there is growing competition. For example, check out the other clip below from ista international but from my understanding, Techem is still the world leader in this space.

If you have anything to add, contact me at LKolivakis@gmail.com and I'll be glad to share your comments.


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