ECP V will remain in the market, sources said, with an eye toward reaching a $6 billion hard-cap in a final close, expected to occur in the first quarter of next year. The firm declined to comment.
The news comes two weeks after UK-listed Bridgepoint announced an agreement to merge with ECP, a veteran energy transition specialist. The transaction – valued at £835 million ($1 billion) upfront – will give rise to an alternative investment manager with €57 billion ($61 billion) of assets.
Bridgepoint is the owner of PEI Group, which publishes Buyouts.
For ECP, which will continue to operate independently, the deal creates a stronger brand to handle future firm-level challenges, senior partner Doug Kimmelman told Buyouts. It also steps up ECP’s game as a nearly two-decade investor in clean energy, electricity, renewable and sustainable infrastructure sectors.
Prior to the deal, Kimmelman was mulling a combination option, regularly taking inbound calls from GPs looking to get into the energy transition space by acquiring ECP.
A key consideration, he said, was finding the right strategic fit. “We didn’t want to be gobbled up and never heard from again.”
Joining Bridgepoint proved to be the optimal solution, he said, in part to prevent poaching of ECP’s seasoned talent. “There are not a lot of people that have been doing this for decades. The Bridgepoint partnership offers a means for attracting and retaining the best people in a market where everyone wants them.”
ECP partners will become one of Bridgepoint’s largest shareholders, holding 19 percent of shares pre-earn-out and up to 25 percent assuming full earn-out. In addition, 30 percent of ECP equity will be distributed to the broader team, providing a major incentive to stay.
As a publicly-traded GP, Bridgepoint will also help ECP address its long-term succession plans. “I’m not going anywhere,” Kimmelman said, “as I have a lot of gas in the tank” – however, coming up with a mechanism for a future liquidity event “takes it off the table.”
Finally, ECP will be able to avoid the consequences of industry consolidation pressures, he said. “LPs were not always focused on the stability of their GPs, but this has become more important in a challenging fundraising environment. Some small managers are just going to go away.”
The Bridgepoint deal allows ECP to tackle these and other issues on behalf of investors “who are betting on us,” he said. When the agreement was struck, Kimmelman said LPs told him, “your firm is stronger.”
Raising ECP’s green game
Private equity has seized on the energy transition – the shift away from fossil fuel-based systems of energy production and consumption to cleaner, renewable sources. Strategy launches and fundraising have accelerated in the past couple of years, often defying tough market conditions.
A key impetus has been LPs eager for opportunities aligned with their net-zero and sustainability policies. A 2023 BlackRock survey found 56 percent of institutions saying they will increase their energy transition allocations in the next one to three years.
When the trend got underway, ECP was one of a handful of pure-play managers with a track record. While he welcomes the competition, Kimmelman is concerned that much recent capital formation is lacking the necessary investment skill sets.
“I don’t use raising money as a measure of success. This business is about executing on investments, adding value and realizing returns in areas like electricity, which is a tricky commodity. The jury is out on how these strategies will perform.”
Joining Bridgepoint will afford ECP a range of capabilities and resources, such as access to new LPs. “You have to earn your way to building an LP relationship,” Kimmelman said, “but it helps when a good introduction is made.”
It also grows ECP’s window on energy transition investing in Europe, where, like the Inflation Reduction Act in the US, billions in government stimulus are available. The firm in January closed its third UK deal with the acquisition of waste and recycling company Biffa for £1.3 billion.
Earlier in 2023, ECP forged a partnership with Sumitomo Mitsui Trust Bank to gain a similar window on potential transactions in Japan.
“Two of the biggest regions for energy transition are Europe and Japan,” Kimmelman said. “Japan ranks number six in carbon emissions, something it wants to get a hold of by moving in a new policy direction.” SMTB gives ECP a local partner to scout out investable opportunities.
Since 2005, ECP has invested in 64 companies reflecting more than $58 billion of value. High-profile portfolio names include Calpine, an electricity generator from natural gas and geothermal resources, and Terra-Gen, a wind, geothermal and solar generation developer – both the focus of recent continuation funds.
Along with Biffa, deals done this year include Braya Renewable Fuels, a low-emission renewable fuels producer backed by ECP, with a $300 million preferred equity investment.
Prior to ECP, Kimmelman was with Goldman Sachs, where he helped create an electricity platform and build a power generation-focused principal investing unit.