AIMCo and OMERS Sell ERM to KKR
KKR & Co. has agreed to buy sustainability consultancy ERM Group Inc. at a time when the business world is paying ever-closer attention to green issues amid pressure from investors.
The private equity firm has acquired a majority stake in ERM from Canada’s OMERS Private Equity and Alberta Investment Management Corp., according to a statement Monday confirming an earlier Bloomberg News report. ERM’s management team and partners will remain minority investors.
Financial details were not disclosed. The deal values ERM at about US$2.7 billion, including debt, people familiar with the matter said, asking not to be identified discussing confidential information.
“This long-term partnership with KKR will allow us to expand and accelerate our client impact, and bring new capabilities and technologies to the business of sustainability,” Keryn James, ERM’s chief executive officer, said in the statement.
ERM advises companies in industries from mining to manufacturing on the environmental and social impact of their operations. The group employs more than 5,500 people in over 40 countries. It generated net revenue of US$792 million in 2020, 9 per cent more than the previous year.
“It’s a very thematic investment and it’s only going one direction,” said KKR partner Tim Franks.
OMERS and AIMCo bought ERM in 2015 for US$1.7 billion, including debt, from Charterhouse Capital Partners.
KKR has invested in ERM through its core investments strategy, which typically holds assets for longer periods. It plans to grow the business through mergers and acquisitions, the people said.
The deal is KKR’s largest in Europe this year and adds to almost US$13 billion of acquisitions by the firm since the start of 2021, according to data compiled by Bloomberg. KKR has been one of the world’s most acquisitive buyout firms throughout the coronavirus pandemic and is currently in discussions about a takeover of public sector infrastructure investor John Laing Group Plc.
OMERS Private Equity and Alberta Investment Management Corporation, on behalf of certain of its clients (“AIMCo”), today announced that they have signed an agreement to sell their majority stake in Environmental Resources Management (“ERM,” or “the Company”) to KKR.
UK headquartered ERM is the world’s largest pure-play sustainability consultancy, operating in over 40 countries with over 5,500 partners and employees globally. ERM partners with the world’s leading organizations to create innovative solutions to sustainability challenges and unlock commercial opportunities that meet the needs of today while preserving opportunity for future generations.
Since investing in ERM in 2015, OMERS Private Equity and AIMCo have worked closely with the Company and its management to support the business’ continued growth and development. This growth has been both organic and M&A-driven, with ERM having acquired and successfully integrated 14 highly complementary businesses during OMERS and AIMCo’s investment period.
During this period of sustained financial and operational success, ERM’s management team has been led by CEO Keryn James.
Jonathan Mussellwhite, Senior Managing Director and Head of OMERS European Private Equity, said:
“When OMERS invested alongside the management and AIMCo in 2015, we saw an opportunity to back the market leader in an industry with considerable long-term growth potential, led by a proven, highly-capable and ambitious management team. ERM has been a perfect match for OMERS Private Equity, our partnership approach and our substantial, evergreen capital base.
The sale of ERM is OMERS Private Equity’s fourth realisation in Europe and our fifth successful exit globally in the past three years. Each sale has resulted in strong income, supporting OMERS core commitment of delivering sustainable, affordable and meaningful pensions for our members. We continue to look for opportunities to deploy capital across Europe as we build our European Private Equity business.”
James Frankish, Director, OMERS Private Equity, said:
“Since 2015, we have supported the Company and its management in ERM’s ambitious growth strategy with great results. As ERM has expanded into new focus sectors such as power, chemicals, and technology, and media and telecoms, ERM has also reinforced its leadership position in corporate sustainability and climate change. ERM moves on from our period of investment significantly enhanced in scale and capability, and well-placed to further deliver critical services to its customers around the world. We wish the business, its management and its employees the very best for the future.”
Peter Teti, Senior Vice President, Private Equity, AIMCo said:
“AIMCo, on behalf of its clients, is proud to have been part of ERM’s journey to be the leading environmental and sustainability advisor globally. Our partnership with the management team and employees of ERM has helped position the Company to grow to new heights with the support of an investment from KKR. We would like to thank the management team and employees of ERM for their unwavering commitment to the Company and its purpose. AIMCo will continue to seek opportunities to partner with great management teams and companies as we continue to grow our global Private Equity platform.”
Keryn James, CEO, ERM said:
“We are thrilled to announce this new partnership with KKR, which will drive a long-term path for growth for ERM - broadening the scope of our client service and deepening our impact on sustainability. I’m so proud of the strong, well-regarded company that we have built, with the support of OMERS Private Equity and AIMCo in recent years. It is our performance working alongside clients to address their most pressing challenges and opportunities that helped position ERM as the right fit for KKR’s investment philosophy.”
The transaction is expected to close in Q3 2021 subject to certain conditions, including regulatory approvals. Financial terms were not disclosed.
As the largest global pure play sustainability consultancy, we partner with the world’s leading organizations, creating innovative solutions to sustainability challenges and unlocking commercial opportunities that meet the needs of today while preserving opportunity for future generations.
Our diverse team of world-class experts supports clients across the breadth of their organizations to operationalize sustainability, underpinned by our deep technical expertise in addressing their environmental, health, safety, risk and social issues. We call this capability our “boots to boardroom” approach for its comprehensive service model that allows ERM to develop strategic and technical solutions that advance objectives on the ground or at the executive level.
Financial details were not disclosed. The deal values ERM at about US$2.7 billion, including debt, people familiar with the matter said, asking not to be identified discussing confidential information.
Our strategy builds on KKR’s established history of investing in solutions and creating value...
- $7.2+ billion invested over the past decade in companies with core business models that advance solutions to global, environmental, educational and workforce development, responsible consumption and production, worker safety, and societal challenges1
- We developed an effective approach that integrates Environmental, Social and Governance (“ESG”) considerations into our investment process by identifying potential risks and opportunities and managing critical issues – we believe responsibly governing a business is a part of achieving favorable investment outcomes
…Focuses on addressing global challenges…
- Global Impact identifies promising companies that measurably contribute to solutions addressing critical global challenges identified by the UN Sustainable Development Goals (UN SDGs)
- Seeks to invest in opportunities where financial performance and societal impact are intrinsically aligned. We believe opportunities exist where investors can achieve financial outcomes by helping to solve critical challenges
You can start to understand why KKR jumped on the opportunity to buy ERM from AIMCo and OMERS, there are a lot of synergies in this deal to help its own sustainable investing approach.
And, I have no doubt that down the road KKR will sell ERM for a nice profit after they achieve the growth they are looking for or maybe they will take it public and realize via that route.
Interestingly, today ERM put out a press release stating it played a critical role in the successful completion of the first commercial-scale offshore wind energy project in the US.
ERM also recently announced it is supporting JPMorgan Chase & Co. in the development of its new Carbon Compass methodology, which describes how they will align financing activities with the climate goals of the Paris Agreement.Wall Street Banks Reject Racial Equity Audits, While Professing BLM Support - via @commondreams https://t.co/H87lXFZ7eN
— Leo Kolivakis (@PensionPulse) May 18, 2021
Shareholders at JPMorgan Chase (NYSE: JPM) annual meeting on May 18 registered the highest vote tally of all racial equity audit proposals for the season, to date: 39%. Large institutional shareholders, including CalPERS, CalSTRS, the Florida State Board of Administration and Trillium Asset Management, joined CtW Investment Group’s push, supported by investor advisory firm Glass, Lewis & Co, to convene stakeholders including civil rights organizations, employees and customers of color to partner with the bank on an audit and assessment of how effectively the bank addresses “adverse impacts on nonwhite stakeholders and communities of color.”
Luckily for ERM, its focus is on sustainability, not as much on the "social and governance aspects" of ESG investing because if racial equity audits become the norm on Wall Street, it will expose some dirty little secrets in an industry which has been slow to act on diversity & inclusion at all levels (it's not the only one, Big Tech also lags behind other industries).
Lastly, in other related news, London City Airport announced last week the return of SWISS flights to Zurich:
London City Airport has welcomed the restoration of connections to Zurich (ZRH), with SWISS to resume flying to Switzerland’s largest city from today (Wednesday 12th May).
SWISS will operate two rotations per week to Zurich initially, although their schedule will increase in line with the anticipated surges in demand for leisure and business travel as travel restrictions are relaxed in the UK and Europe this summer.
This is great news for AIMCo, OMERS, OTPP and Wren House Infrastructure Management Limited ("Wren House"), the infrastructure investing arm of the Kuwait Investment Authority, which bought London City Airport back in February 2016.
London City Airport has a unique history, it's an important investment for these three Canadian pensions and I'm glad to see business is slowly resuming after the pandemic forced shutdowns at this airport.
One infrastructure expert recently told me that "London City Airport is like Billy Bishop Airport in Toronto, it allows business people from Zurich to fly directly into London, not waste time at Healthrow, and leave the same day to go back home."
In any case, the resumption of activities at London City Airport is great news for AIMCo, OMERS and OTPP.
I also note that London City Airport has become the first major international airport in the world to be fully controlled by a remote digital air traffic control tower, following intensive testing and live trials of the technology during lockdown:
All flights on the airport’s summer schedule are being guided to land or take off by air traffic controllers based 115km away at NATS’ air traffic control centre in Swanwick, using an enhanced reality view supplied by a state-of-the-art 50m digital control tower.
The technology marks a step-change in global air traffic management and is expected to help the airport meet an expected surge in demand for flying during the summer season as COVID-19 restrictions are eased from Monday 17 May.
Pretty cool stuff and it shows you how London City Airport is adopting cutting edge technology to bolster its operations.
Below, watch a short clip on why ERM is a global leader in sustainability consultancy.
Also, this year, ERM celebrates its 50th anniversary.You can watch a clip on this anniversary on its website here.
Great company that will grow much larger in the years ahead under the supervision of KKR.
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