Expertise

Expert's view

By Eric Arnould, Global Head of Equity Capital Markets

Concerns are rife on dwindling biodiversity, yet a new species has recently appeared on the French and European business landscape – green unicorns – and this is one piece of good news definitely worth applauding.

These new companies are not a figment of our imagination: green unicorns are mid-sized companies that specialize in generating power from renewable wind and solar sources, and have valuations close to or above €1bn. There are quite a number of these French-grown companies in the country, and they have developed considerably to broadly achieve unicorn status e.g. Neoen, Total-Eren, Akuo Energy, Voltalia and Albioma to name just some of these companies.

A number of common features

Green unicorns share a number of common features. Their business models take a long-term view, with the aim of developing, financing, building and operating their power generation assets. These companies are also display considerable agility, as they generate energy from several sources and have signed various different types of sales agreements with large energy producers, major industry groups and sometimes GAFA, with the ability to operate across all continents worldwide.

These companies also have solid finances and are supported by major banks, as well as large shareholders. Meanwhile, investors have recently taken an interest in these businesses via IPOs or in private investments, and their interests are closely aligned with those of shareholders. Green unicorns also boast experienced – and often longstanding – management teams, while they are also able to attract and train new talents.

All these features have contributed to these companies’ success – which is underpinned by their profitable growth – and are reflected in investor confidence in these names and the ensuing highly visible financial transactions.

By way of example, it is worth mentioning Neoen’s IPO, which was awarded several prizes in France and Europe, was named financial deal of the year 2018, and was also France’s largest IPO last year across all sectors to boot.

Green unicorns are a fast-growing breed

Green unicorns have emerged as a result of the positive environment promoted by both France and Europe as a whole, and these companies should act as an example for other growth industries. Several economic participants have played a role in fostering the growth of this type of company:

Green unicorns have emerged as a result of the positive environment promoted by both France and Europe as a whole, and these companies should act as an example for other growth industries. Several economic participants have played a role in fostering the growth of this type of company:

- support from banks was vital – particularly French banks – as they took an innovative approach and developed devoted project finance set-ups to promote the growth of small companies with bankable projects, regardless of their size.

- support from various equity investor categories, which have backed these companies in France over the past 20 years i.e. green venture capital funds, business owners, family offices, strategic funds, institutional shareholders (including green and socially responsible funds managed by large asset managers), and individual investors, whether directly or via life insurance policies.

- a clear and relatively stable regulatory, tax and competitive framework in France, managed by the French Commission for Energy Regulation.

These various aspects helped set the stage for the emergence of green unicorns, which are now recognized as a real French industry export sector, which can look to the future and address the challenges raised by the COP21, the Paris climate agreement and the recent French PACTE law (Plan d'Action pour la Croissance et la Transformation des Entreprises or Action Plan for Business Growth and Transformation).

Sustainable growth lies ahead

The renewable power sector has enjoyed steady annual growth over the past ten years. Looking across all available renewable power, solar PV and onshore wind have posted the strongest gains with average annual growth of respectively 48% and 19% between 2007 and 2017, as measured in terms of installed capacity for renewable power stations worldwide (source: Ren 21), as the energy mix has shifted towards cleaner energy. This is particularly important at a time when the French Multiannual Energy Program (PPE or programmation pluriannuelle de l’énergie) is about to set fresh targets for the country: will they be ambitious enough?

Global footprint

Several green unicorns along with the renewable divisions of major power groups regularly win large contracts on the national markets where they operate, including Central and Latin America, Australia, Africa and even Asia. Green unicorns have a truly global footprint: they may not have the same international renown as Concorde, but their successes may well be more solid and the companies definitely use fewer resources. They also export some of our best teams and graduates from the best universities to the international arena, as well as talents who have gained their experience in the field.

Socially responsible sector, driven by green finance

With green bonds, responsible loans and SRI funds, green unicorns have been pioneering new certifications for several years now, as they help forge the market standards of tomorrow and influence the largest asset managers not only in France, but also in the US. They strive to encourage these investors to step up their transition to more selective, low-carbon and ethical investment strategies.

Looking into this financing dimension in more detail, in an unusual twist, the emergence of green unicorns is also attributable to the French and European equity markets. Commentators will often refer to the decline of IPOs, yet fundraising for green unicorns provides fresh hope for the European markets.

The European renewable power sector has attracted higher fundraising volumes from institutional investors than the US industry every year since 2016 – via IPOs or rights issues on the listed equity markets. Figures also outstrip Asia, apart from China where individuals still account for most funds raised.

We sincerely hope that this trend will gain traction for larger deals and ensure the sustainability of this market. Here at Natixis and in cooperation with ODDO-BHF, we have decided to invite French and European green unicorns for a first conference in Paris to attract new European investors.

Hopes for green unicorns

A number of aspects are required to ensure green unicorns’ future. Firstly, these companies require a stable environment, which means a clear and stable regulatory framework, and ambitious goals for France and Europe, along the lines of Spain’s bold actions just a few months ago.

Our hope is also that green unicorns will enjoy a long life and great success, which will require their project pipelines to become reality i.e. new plants, and will also involve consolidation in the sector. However, the question is whether these up-and-coming companies will be able to rival with large power groups. These large groups obviously have a role to play and oil majors are well aware of this as they have already taken holdings in some unicorn companies. They may well want to use this as a springboard to further enhance their green credentials in the future, which would be a natural development, but for the moment unicorn companies are still streets ahead.

We also hope that this French success – which is a result of a consistent and sustainable political and financial set-up, strong collective efforts and exceptional individual talents – will encourage other achievements in other industries such as life science and state-of-the-art technologies to create new unicorns and promote business “biodiversity”!

 

This article has been published in french in "Les Echos.fr" on June 19,2019:
https://www.lesechos.fr/idees-debats/cercle/les-licornes-vertes-une-chance-pour-leurope-1030167


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