Fund: Amersham Investment Management EIS
Exit: Two renewable energy investments
Details of the fund
EIS funds managed by Amersham Investment Management invested in two separate renewable energy anaerobic digestor plants that were built and operated by Future Biogas, a leading biomass energy facilities operator. The first investee company received an initial £5 million equity investment in tranches in September and October 2013.
Subsequently an additional £9 million was invested both for capital expenditure and working capital requirements over the period to 31 March 2015.
The second investee company received an initial £5 million equity investment in February 2014 and a further £4 million in loans and equity in March 2015. The average length of investment for the first company was four years to exit and for the second company three-and-a-half years.
Amersham-managed EIS funds invested a total of £6,225,000 in these two enterprises.
What does the company do?
Both investee companies are anaerobic digestion gas-to-grid biomass-fed renewable energy plants. One operated in North Norfolk and the other in Lincolnshire. They both utilised underlying German and UK technology and were assembled and built by UK engineers to allow them to produce on-site electricity to run the plant and to create and inject ‘green’ gas into the UK national gas grid.
What did the company invest the money in?
Building from scratch a new biomass gas-to-grid plant is both an expensive and lengthy process, requiring significant construction as well as accreditation and sign off from various authorities. Both companies started off with brown/green field sites which had planning permission to construct and develop new gas-to-grid anaerobic digestion plants injecting ‘green’ gas into the grid.
The investment funds were used in both instances to develop the site and roadways, build the plant, fermentation and storage – mini gas farms and install the pressure and injection capabilities for these 2.2MW equivalent gas-to-grid plants, along with all of the necessary support services, safety elements and feeding mechanisms. Both sites, once operating, were later upgraded to ensure maximum throughput could be achieved. This was funded either by debt or by equity as appropriate.
As the plants used feedstock feed, investment monies were also used to pay (mainly in advance for the maize, barley and rye crops used as break or rotational crops for the wheat crops local farmers were normally used to growing.
Debtors required funding for up to 90 days-plus, especially in the early days of operations when accreditation and sign off by regulators could take up to 180 days.
How much was raised?
The first investee company received an initial £5 million equity investment in September and October 2013, subsequently an additional £9 million was invested both in capex and working capital over the period to 31 March 2015, of which £4 million was in debt instruments.
The second investee company received an initial £5 million equity investment in February 2014 and a further £3 million in loans and £1 million of equity in March 2015.
How was the exit achieved?
Following an extensive bidding competition and process, the two operating companies were sold in July 2018 to John Laing Environmental Assets, which is a listed environmental infrastructure fund.
How much was returned to investors?
The returns for both investee companies were above the expected return of £1.30 per £1.00 invested gross:
Company one returned £1.424 for each £1.04 invested, this was a return of £0.696 on an aftertax relief investment of £0.728 so a return of 95.6% over the average hold period of four years or 23.9% per annum.
Company two returned £1.517 for each £1.005 invested, this was a return of £0.814 on an after-tax relief investment of £0.7034 so a return of 115.72% over the average hold period of three-and-a-half years or 34.72% per annum.
What other benefits has the company provided?
The essential reasons behind the drive for sustainable renewable energy and the requirement for the nation to be investing in it is well known and hopefully understood.
In addition, for creating ‘green gas’, the companies have been able to provide ‘green gas’ certificates to several household name brands to offset other elements of their energy usage, so providing additional funding for the renewable schemes. Feedstocks used in the plants did not detract from the farming sector’s principle aim to provide food because the crops grown for use in the two anaerobic digestion companies are plants replacing other ‘break or rotational crops’ so allowing farmers to benefit from additional revenues which have been invested back into their business.
The anaerobic digestion companies each employ a small, dedicated staff of people but also rely on local subcontractors and support folk. The operator of these two facilities, Future Biogas, currently employees more than 70 people across all its operations.
Not only do their local economies benefit from the investment but HM Treasury is now seeing a return as the companies start to pay corporation tax.
How will you continue to support the company?
Amersham has sold its entire investment shareholding in these two companies, but remains a long-term investor in Future Biogas, operator of anaerobic digestion plants.
Funds managed by Amersham continue to invest in SEIS and EIS qualifying companies through the Amersham SEIS Fund and the Amersham Corporate Development Capital EIS Fund respectively. The funds are generalist, investing principally in technology, consumer brands and media companies.