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Discover value through a new lens
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EcoValuScreenDiscover value through a new lens.
2
Enhancing due diligence
Why it matters: Expanding transactional environmental due diligence practices beyond the current focus on risk mitigation will help identify new opportunities for operational improvement & value creation.
How we did it: The Carlyle Group, Environmental Defense Fund & The Payne Firm*developed a flexible & scalable due diligence screen that enables investment professionals to identify environmental opportunities that improve operations, reduce costs & strengthen market positions of potential portfolio investments.
How it works: Investment professionals use the screen to evaluate how environmental management can enhance the value of a new acquisition, inform the bidding process & be incorporated into the post-acquisition management plan.
*For more information on Carlyle, EDF & Payne, see slide 14.
3
Why it matters
Cost cutting
Efficiency & cost-cutting opportunities
Cost savings estimates
Operational improvement plan
Revenue growth
Revenue generation opportunities
Revenue growth estimates
Growth plan
Risk mitigation
Risk mitigation opportunities
Liability estimates
Risk management plan
Expanding transactional environmental due diligence practices beyond the current focus on risk mitigation will help identify new opportunities for operational improvement & value creation.
Today Future
4
1. Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental & business performance of 327 current & legacy Carlyle portfolio companies.
2. Correlation of common business activities with environmental impacts: The portfolio analysis revealed a high correlation between environmental impacts & 10 common business activities that occur most frequently across Carlyle’s investment sectors.
3. Opportunity identification: In addition, the analysis began to reveal specific initiativesto reduce environmental impacts of the common business activities while driving financial savings.
4. Integration with due diligence process: The new EcoValuScreen is designed to be flexible, broadly applicable & easily incorporated into Carlyle’s current due diligence practices.
Carlyle, EDF & Payne developed a flexible & scalable due diligence screen that enables investment professionals to identify environmental opportunities that improve operations, reduce costs & strengthen market positions of potential portfolio investments.
How we did it
The EcoValuScreen was developed through a four-step process:
1.
2.
3.
4.
5
How we did it
Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental & business performance of 327 current & legacy Carlyle portfolio companies.
1.
1 Environmental impacts were evaluated across 5 key areas: greenhouse gas emissions, water use, waste production, forest product use & priority chemical use2 Business impacts were evaluated across the entire value chain: including supply chain, operations & facilities, distribution & fleet, product use & disposal
Aerospace & Defense
Automotive & Transportation
Consumer & Retail
Industrial
Healthcare
Telecom & Media
Technology & Bus. Services
Total (7)
Carlyle investment sectors
25
19
26
50
32
41
134
327
Portfolio Companies
Water Waste Forest Products
Priority Chemicals
GHGs
Operations & Facilities
Product Use & Disposal
Distribution & Fleet
Supply Chain
Environmental Impacts1
Business Impacts2
Low/Med/Highimpact
Portfolio Companies
6
Correlation of common business activities with environmental impacts: The portfolio analysis revealed a high correlation between environmental impacts & 10 common business activities that occur most frequently across Carlyle’s investment sectors.
Aerospace & Defense
Automotive & Transport
Consumer & Retail Industrial Healthcare
Telecom & Media
Tech & Bus Srvc.
Resources, Ag, Raw Materials, Energy
Casting, Forging, Stamping & Melting
Chemical/Processing
Compounding
Assembly, Forming
Services, Technology
Construction
1.
2.
3.
4.
5.
6.
7.
Heavy Industrials
Light Manufact.
Services
Carlyle Investment Sectors
Business Activities
Fleet/LogisticsSourcingFacilities Mgmt.
8.9.10.
All Sectors
How we did it2.
Indicates high environmental
impact
7
Opportunity identification: In addition, the analysis began to reveal specific initiatives to reduce environmental impacts of the common business activities while driving financial savings.
Resources, Ag, Raw Materials, Energy
Casting, Forging, Stamping, & Melting
Chemical/Processing
Compounding
Assembly, Forming
Services, Technology
Construction
1.
2.
3.
4.
5.
6.
7.
Business Activities
Fleet/LogisticsSourcing/ProcurementFacilities Management
8.9.10.
How we did it3.
Water Waste Forest Products
Priority Chemicals
GHGs
Cost Savings Revenue Expansion Risk Mitigation
• Changes to fuel mix
• Waste heat recovery
• Right sizing of motors
• Plant layout improvements
• Waste heat recovery
• Redesigned supply chains
• Waste heat recovery
• Refrigeration
• R&D Labs
• Data center analysis
• Logistics software
• Improved maintenance
• HVAC, lighting, sensors
• On-site generation
• Excess tradable credits
• Co-generation
• Biofuels production
• Composting, production of soil nutrients
• Backhaul contracting
• GHG consulting services
• GHG consulting services
• Emissions compliance
• Fuel & electricity supply
• Fuel & electricity supply
• Fuel & electricity supply
• Emissions compliance
• Fuel & electricity supply
• Emissions compliance
• Fuel & electricity supply
• Driver training
• Green procurement
• Lighting retrofits
• Supply chain
• Backhaul contracting • Car accident reduction
• Maintenance risk mitigation
Project opportunity areas
Heavy Industrials
Light Manufact.
Services
All Sectors
8
Broad scan/issues & opportunity identification
Target selection
Key process grouping
Selective deep dives
Risk mitigation opportunities
Liability estimates
Risk mitigation plan
Efficiency & cost-cutting opportunities
Cost savings estimates
Operational improvement plan
Revenue generation opportunities
Revenue growth estimates
Growth plan
Management Plan
The Carlyle Group: Due diligence modules
Revenue growthCost cuttingEcoValuScreen:
How we did itIntegration with current due diligence process: The new EcoValuScreen is designed to be flexible, broadly applicable & easily incorporated into Carlyle’s current due diligence practices.
4.
Risk mitigation
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1. Scan: Scan the target company for relevant business activities.
2. Identify: Use relevant business activities to identify an actionable list of operational projects that will enhance environmental performance.
3. Assess: Quantify projects’ benefits & identify highest priority environmental & financial performance initiatives.
4. Implement: Integrate initiatives into the post-acquisition management plan & share lessons learned across deal teams & funds.
How it worksInvestment professionals use the screen to evaluate how environmental management can enhance the value of a new acquisition, inform the bidding process & be incorporated into the post-acquisition management plan.
The screen consists of a four-steps:
1.
2.
3.
4.
10
Scan: Scan the target company for relevant business activities.
1.
• Powertrain casting division (Casting)
• Parts production, assembly line (Assembly, Forming)
• Distribution fleet (Fleet/Logistics)
• Sources 50% of parts from external vendors (Sourcing)
• 750 sales offices, 20,000 employees (Facilities)
How it works
Automotive sector target company example
Aerospace & Defense
Automotive & Transport
Consumer & Retail
Resources, Ag, Raw Materials, Energy
Casting, Forging, Stamping & Melting
Chemical/Processing
Compounding
Assembly, Forming
Services, Technology
Construction
1.
2.
3.
4.
5.
6.
7.
Carlyle Investment Sectors
Business Activities
Fleet/LogisticsSourcingFacilities Mgmt.
8.9.10.
11
How it works
Identify: Use relevant business activities to identify an actionable list of operational projects that will enhance environmental performance.
2.
Casting, Forging, Stamping, Melting
Assembly, Forming
Fleet/Logistics
Sourcing/Procurement
Facilities Management
Water Waste Forest Products
Priority Chemicals
GHGs
Cost Savings Revenue Expansion Risk Mitigation
• Plant layout improvements
• Waste heat recovery
• Improved maintenance
• HVAC, lighting, sensors
• GHG consulting services
• On-site generation
• Excess tradable credits
• Emissions compliance
• Fuel & electricity supply
• Right sizing of motors • Fuel & electricity supply
• Driver training
• Speed governors
• Green procurement • Supply chain
• Backhaul contracting • Car accident reductionRelevant business activities
12
How it worksAssess: Quantify projects benefits & identify highest priority environmental & financial performance initiatives.
3.
Project DescriptionBest Case
($M)Reasonable Case ($M)
Worst Case ($M)
Prob. Of Success (%)
NPV Scenarios
Reuse scrap materials
Sell unused scrap
Shared material buying
$25M
$5M
$10M
$10M
$2.5M
$4M
$5M
$1M
$0
65
40
25
Driver training
Speed governors
Plant layout improvements
$30M
$10M
$10M
$20M
$5M
$8M
$10M
$4M
$6M
70
30
25
Motion-sensitive water nozzles $10M $8M $6M 90
TOTAL BENEFITS $100M $57.5M $32M
Waste
GHGs
Water
Best Case Worst Case
Environmental. Savings
10,000
10,000
5,000
2,000
2,000
0
25,000
20,000
10,000
8,000
9,000
6,000
15,000 8,000
Waste (tons)
GHGs(tons of CO2 eq.)
Water (gals)
• Waste (tons)
• GHGs (tons CO2 eq)
• Water (gals)
25,000
55,000
15,000
Total Environmental Savings
4,000
23,000
8,000
Best Case Worst Case
15,000
40,000
12,000
Reas. Case
Environmental & Financial performance initiativesProject: Automotive Company Example
The Payne Firm, Inc. Illustrative
13
GHGs
Implement: Integrate initiatives into the post-acquisition management plan & share lessons learned across deal teams & funds.
4.
How it works
� Grow revenue 10% through Asia expansion
� Reduce cost 15% through supplier negotiation
� Invest additional 5% of sales into R&D
� Reduce waste and management costs 5%
• Reuse scrap materials
• Sell unused scrap
• Shared material buying
� Reduce fuel usage and costs 10%
• Driver training
• Speed governors
• Plant layout improvements
Management Plan
Project: Automotive Company Example
Project Description
Reuse scrap materials
Sell unused scrap
Shared material buying
$10M
$2.5M
$4M
Driver training
Speed governors
Plant layout improvements
$20M
$5M
$8M
TOTAL BENEFITS $49.5M
Waste
GHGs
Waste (tons)
(tons of CO2 eq.)
The Payne Firm, Inc.
Projected environmental
savings
6,000
6,000
3,000
15,000
15,000
10,000
Projected financial
savings $M
IllustrativeEnvironmental & Financial performance initiativesProject: Automotive Company Example
Illustrative
14
For more information
The Payne Firm (Payne)
The Payne Firm, Inc. is an environmental consulting firm that provides full life cycle services to private equity sponsors to improve performance of their portfolio companies. The Payne Firm has served as the environmental deal advisor in over 175 transactions with enterprise value in excess of $100 billion. The Payne Firm is a member of the Inogen Environmental Alliance, a global network of 165 member offices in six continents with over 4,800 professionals world-wide. www.paynefirm.com
The Carlyle Group (Carlyle)
The Carlyle Group is a global private equity firm with $88.6 billion of assets under management committed to 67 funds as of December 31, 2009. Carlyle invests in buyouts, growth capital, real estate and leveraged finance in Africa, Asia, Australia, Europe, North America and South America focusing on aerospace & defense, automotive & transportation, consumer & retail, energy & power, financial services, healthcare, industrial, infrastructure, technology & business services and telecommunications & media.
Since 1987, the firm has invested $59.6 billion of equity in 952 transactions for a total purchase price of approximately $233.0 billion. The Carlyle Group employs more than 860 people in 19 countries. In the aggregate, Carlyle portfolio companies have more than $84 billion in revenue and employ more than 398,000 people around the world. www.carlyle.com
Environmental Defense Fund (EDF)
A leading national nonprofit organization, Environmental Defense Fund represents more than 700,000 members. Since 1967, EDF has linked science, economics, law and innovative private-sector partnerships to create breakthrough solutions to the most serious environmental problems.
EDF has a 20 year track record of success in partnering with business. To maintain its independence and credibility, EDF accepts no money from corporate partners; generous individuals and foundations fund its work. www.edf.org.