Wednesday 30th March 2016

Wind Watch

This guest Wind Watch has been written by Kenn Righolt, chief executive at online renewables marketplace Green Dealfow.

Know Your Buyer: Five Investor Types Explained

For a novice seller, many investors seem to have near-identical interests and concerns.

However, once we start digging deeper through interviews and negotiations, we realise how differently investors approach their investment decisions. If you are selling a project then it is obvious that you want to achieve the best possible price, but you also want to close a deal with a potential buyer, whom you may have been in talks with for months.

To improve your odds with the transaction, you must have a keen understanding of the types of investors and their characteristics. There are five main types of investors in renewable energy: family offices; utilities; institutional investors (pension funds and insurance companies); funds; and brokers.

These five types can be categorised as either direct buyers (who buy for themselves) or indirect buyers (who buy on behalf of a final investors). With regards to the indirect buyers, it is especially interesting to know if they have capital available to complete the deal, or whether they need to return to the investor they represent in order to secure the funds needed to complete the deal.

Here are the different investor types and their characteristics.

Direct investors: family offices, utilities, and institutions

Family Offices:

Characteristics: Vary a lot. Strong bias towards tax optimisation.
Financial leverage: Often interested in maximum leverage.
Investment stage: Normally from ready-to-build stage.

Utilities:
Characteristics: Typically not a pure financial investor, but investments are part of the utility’s strategy.
Financial leverage: Often interested in maximum leverage.
Investment stage: Can work with all stages.

Institutional:
Characteristics: Interested in long-term view.
Financial leverage: Normally not interested in any financial leverage and come with 100% equity.
Investment stage: Normally at the turnkey stage.

Indirect investors: funds and brokers

Funds:
Characteristics: Normally only receive their fee if the deal is made.
Financial leverage: Often focused on maximum financial leverage.
Investment stage: Normally from ready-to-build stage.

Brokers:
Characteristics: Normally only receive their fee if the deal is made.
Financial leverage: Depends on their client’s investment profile.
Investment stage: Depends on their client’s investment profile.


These descriptions are only intended as guidance of course and, within each category of investor, you will find wide variances in how they deal with investments. Even so, project sellers can improve their chances of achieving the best project sale outcome if they know what their buyers are looking for.

And this leads us to the key question: who pays the best prices?

Unfortunately, it is hard to say as there is still too much variance within each group to pick a specific ‘winner’. Sellers can make a qualified guess if they ask the buyers about their assumptions for life-time for calculating the return, expectation for future electricity prices, operational expenditure prices, availability, performance ratio and so on.

But as ever, getting the best price also relies on strong negotiation. Understanding what your buyer is looking for can only help.