RSS feedsJames Cowper has scored a first for independent firms by establishing a division aimed at businesses in the green economy. Instrumental in setting it up was Paddy Thompson, who knows about energy green and not so green.
Through experience in the traditional energy sector he has gained the credentials for working with alternative energy providers, waste management companies and other environmental clients. The corporate finance specialist is now a senior manager in 16-partner firm James Cowper.
But in 2004, while working for Numerica, he advised on the management buy-in of Uskmouth Power by Carron Energy, now part of the Welsh Power Group, in a deal funded by Rutland Partners for an undisclosed sum. The project involved the acquisition of a 360MW coal-fired power station in Wales and brought in a management team with an entrepreneurial outlook.
Working with the management team and then investors on the transaction gave Thompson a solid grounding in the fundamentals of the energy sector. ‘We put together the management team with funders and also did the financial modelling to back it all up. It was a very good introduction to the energy markets. Until you’ve done it you can’t really appreciate the pricing regimes of energy companies and different pressures they face,’ he says.
Thompson’s accountancy background has taken him around the country: a traineeship with Ernst & Young in Newcastle, a move to the corporate finance division in Reading, a stint in accountancy consolidator Numerica’s London office and then to the Reading office of James Cowper.
After his training Thompson soon made up his mind to explore other options. ‘The Big Four firms are always a very good place to train, but when it comes to spreading your wings and doing something a bit different, it is often the smaller firms that offer good opportunities,’ he says.
He joined Numerica, the AIM-listed accountancy consolidator in 2002 and continued working in its West End office after it was taken over by Vantis. But with a young family to consider, he wanted to be closer to home and joined James Cowper in 2006 after a colleague mentioned the firm as one of the two practices worth considering in the Thames Valley region.
Thompson knew the area and that it offered a steady stream of innovative businesses ready for growth. The Silicon/Thames Valley connection is obvious, but the firm’s three offices in Reading, Newbury and Oxford make it well placed to pick up business from the university spin-offs from Oxford, Birmingham and Warwick, Thompson explains. The proximity to London puts him within easy reach of specialist investors and funds. The fact that the region is also rural does no harm either.
'There are lot of opportunities for renewables that are connected to having land wind power generation, bio-fuel crops and so on,’ he explains.
That said, the firm is not confined by its geography and Thompson’s clients are ambitious. ‘A lot of clients are looking for national and global markets,’ he says.
He joined the firm just as businesses in the green economy were starting to gather momentum. It advises companies involved in bio-fuel production, renewable energy generation, combined heat and power providers as well as those developing sustainable building materials and involved in carbon accounting and carbon credits.
An early case he worked on revolved around finding early stage funding for a wave power business. While this technology is still in its infancy, the commercial potential is great, he says. As an island, the UK has tremendous stores of so far untapped wave and tidal power. Successful installations in this sector could go a long way to helping the UK meet its target of a 20% cut in ca rbon emissions by 2020.
The key to working with these companies, says Thompson, is establishing their longer-term viability. At the moment, many of them exist in a mixed economy of government subsidy and early stage funding. But he stresses that to gain the ear of investors they must have a business case that shows a commercial revenue stream, rather than a future based on extended subsidies.
'Subsidies are important to level the playing field in power generation,’ says Thompson. ROCs (renewable obligation certificates), for example, are earned for each megawatt of energy generated from qualifying renewable sources and can be traded, he explains. ‘But if your business depends on ROCs then you are actually depending on long-term political will.’
Injecting that kind of realism into discussions with clients is an essential part of the job, he says. This is a sector where management teams need to understand market drivers and the political background whether they are a two-person team looking for early stage funding or a more mature business.
Thompson takes a keen interest in the credibility of the management team and its business activities. The pace of change in scientific knowledge is great, and debate on how best to measure the benefits of environmentally-minded companies has by no means reached a consensus. The carbon offsetting market has been much questioned and the means by which we measure the environmental impact of all kinds of businesses and activities is likewise being batted back and forth. Questions around whether you include the carbon emissions of parties up and down the supply chain of a supermarket rage on, for example. These questions are crucial to settle the question of how businesses are doing against targets such as the EU’s carbon reduction commitment.
‘The regulation isn’t there at the moment,’ he says. ‘It will get there because there is a lot of political pressure.’
One client involved in the carbon footprinting business, Best Foot
Forward in Oxford, has adopted a system that measures carbon emissions and other
environmental impacts in an approach close to an accounting system, says
Thompson.
Footprinting accounts for the use of renewable resources and provides a snapshot
of an organisation’s demand and supply of renewable resources over the year. The
company compares the footprint to economic indicators such as GDP or RPI.
As with carbon footprinting, waste management companies, alternative and efficient fuel generators, accountants need to keep pace with developments and debate and help clients to broaden their horizons by continuing to question the underlying assumptions behind the business.
‘It is a developing and expanding industry and as such you need to have the flexibility as a professional to provide solutions that meet their situations. There may be a 100 different “what ifs?” in the financial modelling. Will subsidies go? What if demand increases radically. The financial modelling required is much more detailed and complex than financial modelling for an MBO, for example.’
The advice James Cowper can offer ranges from grooming companies for early stage funding or flotation, advice around other corporate transactions and general strategic advice. Helping to make a business investment-ready, identifying gaps in the management team or weaknesses in the business or strategic direction sometimes means helping people address uncomfortable truths about the business they have strived to get off the ground. ‘These issues have to be faced,’ he says.
Thompson is keen to see those businesses operating viably in the open market and he’s a strong believer in their social and environmental objectives.
‘There is huge satisfaction in knowing that what we’re creating is something profitable and that will address the issues that are facing us all. This sector is coming out of the realm of public subsidy and entering the realm of private sector investment. The profit motive is extremely useful in driving this industry forward.’
Skills that count in the green economy
• Above all, a grounded, realistic and pragmatic approach.
• Honesty: ‘It’s very important in this industry to be very honest with these
businesses. Early stage businesses may have unrealistic views on their value.
Telling them everything is lovely is not helpful.’
• Working to the highest levels for the benefit of clients’ businesses: ‘These
are companies with big growth potential and they need to have a firm
foundation.’
