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Equity Firms and Water

I wrote about Private Equity for Infrastructure just recently.

Originally Published: By Tom Henderson
March 02, 2014 8:00 AM
Modified: March 02, 2014 8:50 PM
Crain’s Detroit Business

Manoj Bhargava funds company to invest in water and energy deals

The billionaire behind 5-Hour Energy garnered headlines in May 2011
when Crain’s revealed he was the mystery investor who put in
$100 million of his own money to launch Farmington Hills-based
Stage 2 Innovations LLC
, a private equity firm established,
according to its website, “to accelerate the large-scale
commercialization of innovative, patentable technologies
in the global market.”

Monday, it will be announced that Bhargava is
funding another private equity company,
Farmington Hills-based Oakland Energy and Water Ventures LLC,
which will invest up to $100 million in individual deals in
companies around the world that are focused on
energy conservation and water treatment.

Oakland Energy has already signed nondisclosure agreements with
several Michigan companies about possible investments,
according to managing director Chris Brower.
He and the companies’ two other managing directors,
Kevin O’Connell and Rick Manner, all recently left Stage 2.
“We’ll have several big launches this year,
very interesting and large projects,” Bhargava told Crain’s Friday.
He said Oakland Energy doesn’t have a fund with a fixed amount of money.
“Deal by deal, we’ll spend the money,” he said.

When asked how much in total he was willing to invest in
portfolio companies for Oakland Energy, Bhargava said:
“The limiting factor isn’t capital.
The limiting thing is how much can we do without running
out of brainpower. We need to have the right management.
But if something really remarkable comes along,
we’ll figure out a way to make it work.”

Brower was a member of the Crain’s 40 under 40 class of 2011
when he was manager of transaction and restructuring in
the Detroit office of KPMG LLP.
O’Connell has more than 20 years in energy-related businesses,
including 14 years as director of the electric power business
for Michigan CAT, a seller and renter of construction equipment.
Manner has 30 years of management experience in supply chain management,
including Fisker Automotive, an electric car company based in
California that was bought earlier this month by the
Wanxiang Group, a Chinese auto parts conglomerate.

Stage 2 originally had a focus on water and energy as well as
medical technologies, and Bhargava told Crain’s in 2012,
without naming any company names, that he had invested in
a seawater desalinating project, a hydroponic agricultural system
to use in vacant warehouses, an additive to make diesel fuel
20 percent more efficient and a way to remove mercury emissions from coal.

Bhargava said he spun Oakland Energy out to give it a clear focus
on energy and water. He said that the diesel-fuel technology
and the mercury emissions technology hit dead ends,
but that there will be big news coming from Stage 2 in a few months
about the seawater project and the commercialization of medical technologies.
He said he hadn’t decided yet whether to keep the desalinization
project under the Stage 2 umbrella or move it over to Oakland Energy.

Brower, O’Connell and Manner say they have been doing due diligence
on possible investments since December and have looked at dozens
of companies in Michigan, the East Coast and the South and
will be on the West Coast this week.

Avoiding the box
O’Connell said having a single investor frees Oakland Energy
from the fixed investment parameters that private equity companies
generally have when taking on partners for limited-partnership funds.

Typically, private equity funds have upper and lower limits for
the revenue of companies they invest in, or minimum amounts of
EBIDTA (earnings before interest, depreciation, taxes and amortization)
for potential portfolio companies.
Limited-partnership funds may also be locked only into deals where
they can acquire controlling interest.

“We’re trying not to put ourselves in a box.
We’re looking to invest in innovative ideas.
We want to be broad-based.
We don’t want to be a typical fund
that puts things into neat buckets,” said O’Connell.

The result is flexibility when looking to invest.
Oakland Energy will pursue license agreements, joint ventures,
partnerships and controlling or non-controlling interests
in both small companies with interesting
but barely commercial technologies and large well-established companies.

Detroit-based Huron Capital Partners LLC,
the state’s most active private equity company
has just launched a new platform company
that will look to make acquisition of companies
that help drive energy efficiency.
John Higgins, a senior partner at Huron Capital,
said the timing is right for Oakland Energy.

“There is a lot of focus on better managing energy consumption,”
he said. “There’s a lot of government money to support it,
there’s a lot of money available through utilities,
and there’s a lot of interest by companies to reduce their energy costs.

“There’s a lot of opportunity to apply technology developed over
the last 20 years to use less energy and to spend less money on energy.
There’s certainly an overlap between what we are doing and what they are doing.
We might be able to kick up some opportunities for each other.”

While Oakland Energy’s managing directors have yet to go overseas,
they said they will pursue energy- and water-related companies
and markets around the world, with a focus on the Third World,
where energy and clean water are lacking.

“We’re looking for innovative projects that
can enhance the way people live,” Manner said.

Said Bhargava: “We want home runs. Big successes.
We don’t want singles.
We want to affect people throughout the world.”

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