Ventus Energy to be acquired by Suez SA of France

The deal is now public (by policy we let others break the news of our portfolio companies; despite having a corporate blog, we naturally keep the private affairs of our portfolio firms and their VCs confidential): Wellington Financial Fund III portfolio company Ventus Energy has agreed to be acquired by France-based Suez SA (SZE:NYSE) for $124 million in cash. This is our second major takeover in as many months, as Discovery Air (DA.A:TSX) announced in June that it was acquiring Fund II portfolio co. Top Aces for $70 million. (Once again, no quiet summer at the links this year.)

Around this time last year, our team started to work furiously away on leading a $29 million project finance transaction for Ventus. It was the first time in our history that we’d ever done a deal quite like it (see post “Wind power? Where’s the tech in that?“, September 16-06). The financing syndicate included existing Ventus institutional shareholders VentureLink and Good Energies BV. The funds would be used to complete the Ventus P.E.I. wind farm known as Norway and the 1st phase of their large West Cape project.

Although the project was still under development and the company had yet to generate any revenue, something that we usually avoid, we took comfort from a variety of important factors:

– the City of Summerside had already agreed to buy power from the company the moment the wind turbines were up and turning;
– any excess power generated could be sold to the grid that supplies the electricity-hungry U.S. Northeastern market;
– the market for wind turbines was very robust throughout the world, giving us a good sense of what a shipment of Vestas turbines would be worth; and
– existing investors were continuing to be highly supportive of the company and were very involved at the board level.

During the months that followed, the company continued to raise additional funds from the capital markets, but retail investors were proving to be a difficult sell at times. With incredible frequency, Canadian stock brokers would open up their morning DTM newspaper and read about how wind farms were a fad with no future (see prior posts “Canadian wind power doubles in 2006“, March 16-07, “Gov’t to legislate alternative energy“, January 27-07, “Globe read thyself“, January 2-07, and “Reguly tilts at the wrong windmill“, November 30-06, “How much wind is too much“, October 30-06). In late December, Ventus announced that it had closed a $25 million limited partnership flow through vehicle, but it had to fight strong headwinds.

A few months later, and the first turbines are up and running. It wasn’t too long before homes in Summerside, PEI were enjoying their green power, and Ventus became the first Canadian windfarm operator to export power to the United States (see post “Ventus Energy ships green power south“, May 16-07).

Add a few more days to the timetable, and firms from around the world are knocking at Ventus’ door, looking to acquire it.

This success is a great tribute to everyone involved, and another reminder why there are times when you have to ignore what you are reading in the newspaper when making investment decisions. Primary due diligence is the key, although the mood of the capital markets (which is certainly influenced by the media) is often highly relevant. The Ventus team showed us the business opportunity in their vision, and it played out. The turbines were best in class, the wind data was excellent, PEI politicians were highly encouraging, and there was no risk that the U.S. North Eastern electricity grid would be disinterested in buying some additional power from PEI over the next decade or so.

As for the C.D. Howe report that says labour sponsored funds can’t do a decent deal, VentureLink’s John Varghese told the media last night that his funds will earn a 50% internal rate of return on their Ventus investments. In that same article, Ventus CEO John Douglas said that in 2003 he felt he was “crawling up Bay Street on his belly” in the search for money to finance his dream at Ventus.

I can assure you that he never felt that way at our shop, and not just because our downtown Toronto office happens to be across the street from his. We saw what he saw in PEI, and ensured that the $29 million showed up on time last September. Once the turbines were on their way, the arrival of the French conglomerate was only a matter of time.

Congrats to everyone at Ventus!

MRM