Gary D. Vollen is Managing Director and the San Francisco-based head of Cleantech investment banking for RW Baird & Co(http://www.rwbaird.com), a Milwaukee-based company that was at one time affiliated with Northwest Mutual Life, “The Quiet Company,” but that is now employee-owned.
Gary, whom we have known for 15 years or more, has a long history of investment banking in California, and spent several years with Pacific Growth Equities. We had the opportunity to grab some of Gary’s time and here are some excerpts from the conversation:
SmallCapWorld: Tell us something about how you define Cleantech at RW Baird, first, because we know it is a broader definition than it might be some places.
Gary: We see Cleantech as a broad industrial technology platform and opportunity, not simply a cleanup or pollution prevention definition. The way we see it, there has been a shortage of investment in what you might call the “old economy” in the US for the last 50 years. That would include manufacturing companies that have fallen out of fashion but are still core industries. Most investment over the last 30 years has been directed toward tech companies, IT and the service sector. Now it is time to modernize, clean up the “old economy” companies, and Cleantech will play a huge role in revivifying what some people used to call the “smokestack” economy. The energy business, for instance – now it includes solar, wind, waste or biomass-to-energy, hydro and wave energy. But it also still includes coal burning and oil burning, and those things have to get cleaned up and modernized too.
SmallCapWorld: There are so many little cleantech companies with interesting ideas. What appeals to you?
Gary: You have to sort through all the neat ideas and find the ones that have potentially economical solutions. And that doesn’t mean something that may make money in 10 years, either. We have to separate out what I might call the “academic science” ideas in favor of the ones with a compelling payback scenario. That includes renewables – solar more than anything else – but wind, geothermal, with hydro further back in the queue, including tidal and wave energy.
SmallCapWorld: OK, give us something specific.
Gary: We did an offering for Synthesis Energy Systems (http://www.synthesisenergy.com), which trades on Nasdaq under the symbol SYMX. It is broadly in the coal gasification business. They take lowgrade coal that would not be burnable as fuel in a traditional setting, scrub it up and make it into a burnable gas. For some people that might not sound like cleantech because it still means burning something – but for us, it is a matter of taking something useless, cleaning it best possible, and making it useful right away. And there is no question it is a lot cleaner than coal-burning plants are today.
SmallCapWorld: Got it. Anything else?
Gary: Another really interesting company is Bright Automotive (http://www.brightautomotive.com/about-us) , whose mission is to “decarbonize transportation.” It’s privately held, but has a handful of grade-A angel investors and an absolutely top-rate management team, along with a best-of-breed approach to the HEV business. A lot of the guys at Bright have logged years or decades in the Big 3, and they wanted to move faster, cleaner, leaner, meaner. I think they are doing a great job.
SmallCapWorld: How about one more?
Gary: Sure. We like EnerTech Environmental (http://www.enertech.com/), also privately held and headquartered in Atlanta, but with a big environmental project in Rialto, California. What they do is to extract the water and liquids from the slurry that is generated in waste disposal plants, significantly reducing the transportation costs of hauling to places where the solids can be either used or buried. Their project in Rialto can save 25% of the transport costs, which can add up to a lot of bucks. We did some project debt financing for them, and some Series B financing as well.
SmallCapWorld: Are you seeing any deals now?
Gary: Sure. But understand that for the most part we are not advising people to raise equity money or sell their companies right at the moment, for reasons that are probably obvious. We are seeing more interest in M&A activity, and we think the M&A arena will start to get busier in our field of Cleantech in the late winter or early spring — say the March timeframe. There will probably be a flow of PIPE deals in the spring too, even if the public offering business doesn’t come back to normal until mid-year or later.
SmallCapWorld: What problems do you encounter?
Gary: Right now, valuations are a problem. We work with a lot of privately held companies and sometimes entrepreneurs have a hard time coming around to the idea that the huge devaluations in the public markets have an influence on private company valuations in M&A transactions. That sort of thing is always a problem – finding a valuation on a private company that everyone can agree on. But for now, we think we may see more public-public M&A deals for a while than public-private ones. VC-backed companies may be more realistic in terms of open-market valuations.
We have a “barbell” image in terms of the types of deals we think will get done sooner rather than later. On the one end are deals with a fairly fast payback, and on the other end are longer-term deals that have a real potential to be out of the park home runs. And in the middle, a lot less interest.
SmallCapWorld: Has the market bottomed yet?
Gary: (laugh). The quick answer is probably yes, but we think some rallies may end with the market looking for the bottom again. There are still other shoes to drop, but I don’t know that we will go much lower than we already have. The longer answer is that I think recovery will take longer than we would like, though I think the worst may be no worse than what we have already been through. Credit should continue to loosen up.