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Why Brookfield is backing carbon capture and storage; PE deals in machinery score, says Bain & Co.Why Brookfield is backing carbon capture and storage; PE deals in machinery score, says Bain & Co.

Brookfield invests in Entropy.

Good morning, Hubsters. MK Flynn here with today’s Wire.

Energy. Today PE Hub is featuring an emerging technology in the energy sector that private equity firms are beginning to back: carbon capture and storage (CCS).

Brookfield Asset Management recently invested C$300 million ($234 million) in Entropy, a subsidiary of Advantage Energy, to expand deployment of Entropy’s carbon capture and storage (CCS) technology globally. PE Hub’s Obey Martin Manayiti caught up with Brookfield managing partner Jehangir Vevaina to learn more about the deal and the technology.

The deal marks the fourth investment out of the Toronto firm’s debut Brookfield Global Transition Fund (BGTF), which targets opportunities to reduce greenhouse gas emissions, increase low-carbon energy capacity and support sustainable solutions. In February, CEO Bruce Flatt said the fund was “in the final stages” of wrapping up at $15 billion in a letter to shareholders about Q4 earnings in February. BGTF is the largest fund in the world focused on energy transition, according to Brookfield.

The Entropy deal is Brookfield’s first investment in CCS, a strategy for capturing carbon dioxide produced by power generation or industrial activity before it enters the atmosphere, transporting it, storing it and potentially reusing it.

“Decarbonization has been very important for us,” Vevaina explained. “We see the natural extension of clean energy solutions being broader decarbonization, and aspects like carbon capture and storage are extremely important.”

CCS is still in the early stages, which means there’s plenty of opportunity for growth, Vevaina said. “The amount of investment that is going to be required is very substantial, so I think private investment is going to play a key role in scaling this industry.”

For more, read the whole story.

Industrials. Earlier this morning, Bain & Co. published Global Machinery & Equipment Report 2022. It contains a chapter on private equity.

Here’s a snippet:
“The machinery and equipment sector has been among the most active industrial sectors in global private equity (PE) dealmaking since 2010,” finds the report. “Some of the largest industrial deals were in machinery and equipment, including Advent and Cinven’s €17.2 billion ($20.2 billion) purchase of Thyssenkrupp Elevators in 2020. More important, when it comes to post-acquisition performance, machinery and equipment deals are outperforming those in other industrial sectors. Over the past decade, machinery and equipment deals produced a median multiple on invested capital (MOIC) of 2.5. That measure—the ratio of total distributed capital plus unrealized value to total investment cost—was 10% higher for machinery and equipment deals than for the industrials sector as a whole. During the same period, the growth in enterprise value for machinery and equipment companies was 1.9 times. Three key factors contributed to the rise: revenue growth, margin increase, and multiple expansion (which is influenced by top-line and margin growth).”

The report continues: “In our experience, top-performing funds take a holistic approach to value creation. That means they look far beyond a company’s cost structure, including general and administrative (G&A) expenses, procurement, and operations, to tap all areas of potential improvement, including commercial excellence, pricing, service excellence, and mergers and acquisitions (M&A). Winning PE firms also spot opportunities to reposition traditional businesses and benefit from broad trends that are reshaping markets. Key trends affecting machinery and equipment companies include sustainability and the application of new technologies such as sensors and automation to traditional products and processes.”

Growth equity. The May issue of Buyouts magazine is out, with a cover story on growth equity by Kirk Falconer.

“Growth equity is having a moment,” Kirk writes. “Propelling – and propelled by – historic technology adoption across the economy, growth equity is rubbing shoulders with buyout as one of the most popular asset classes with LPs.”

On the deal side, growth equity was hot in 2021, with 1,508 deals closing at values topping $125 billion, up 61 percent from 2020, according to Pitchbook. Companies backed in the flurry of investing included app security tester Invicti, document automation platform PandaDoc, physical therapy provider PT Solutions and womenswear brand Spanx.

“But if growth equity was last year enjoying halcyon days, the strategy might soon face a major test,” Kirk writes. “Clouds, in the form of inflation, higher interest rates and supply-chain disruptions, have cast a shadow over the market, bringing uncertainty and potential volatility. Economic challenges were reinforced by Russia’s invasion of Ukraine and covid-19’s still lingering threat.”

There are already early signs of a shakeup in dealmaking. “Some businesses are now deferring processes until later in the year because they are not getting the price they want,” Mark Shulgan, head of OMERS Growth Equity, told Kirk. Deal terms are also becoming “more commoditized,” he said, as growth equity firms “return to sane structures” to gain more price protection than was usual in the immediate past.

Read the full story.

That’s all for now.

Until tomorrow,
MK