Going Green in China: Paris, Private Equity & the Promise of a Cleaner Future

The COP21 Climate Change Summit in Paris marked the first time all countries—200 in total—have agreed to cut carbon emissions. The agreement will begin in the year 2020.

This climate agreement goes farther than any previously adopted, it’s detailed, with mechanisms for enforcement and a clear path to success. But not all elements of the deal are binding, and respected environmental organizations claim it falls far short of creating real and permanent change.

Past summits found developing countries and two of the top three biggest contributors to carbon emissions, China and India, crying foul. Their argument was based on who created the problem—the U.S. and other developed nations—and who would now be punished—nations just coming into their own.

Highlights of the deal include keeping global temperatures below 2C (3.6 F) with efforts to limit it to 1.5C. The plan and its progress will be reviewed every five years.

Perhaps the most interesting to private equity firms will be the $100 billion a year in climate finance for developing countries—which includes China—by 2020, with a commitment to further finance in the future.

Clean energy investments, into a country that has no choice but to change, has long been gaining ground.

According to Forbes, while most clean-technologies are developed in the United States, they are mostly infused into China’s new infrastructure, manufacturing and power generation projects.

According to Bloomberg, in 2012—far before the Paris agreement—the country attracted $65.1 billion in clean energy investments, up 20 percent from 2011 and 30 percent of the total commitment to G-20 countries.

Investments cover a broad range of green tech—solar panels, electric cars, advanced batteries and wind generation. China may be slow, but they’re catching on.

The value for China to produce at all costs may have finally reached its tipping point—the poor air quality has had a direct impact on the health of the economy, and continues to slow it down. While corporations may want to do business in Beijing, they’re hesitant to set up shop. Talent is reticent to move to a city with tiny particle matter measured at 886 micrograms per cubic mater—more than 25 times the standard in the U.S.

China’s poor air quality has now become a permanent fixture in the country’s identity. The issue has headlined international news stories and lead arguments made by human rights activists. According to the New York Times one of China’s largest exports is pollution, as “filthy emissions from China’s export industries are carried across the Pacific Ocean and contribute to air pollution in the Western United States…”

China has no choice to change. And with change is an opportunity for investors. Clean tech may be more about dollars than wanting to create a better world, but the impact will be the same. A healthier environment will bring a healthier economy.

Alfred Zaccagnino, founder of Samarian Group of Companies, a private equity firm with a growing international portfolio, recognizes the interest in green tech, not only in China but in other markets as well.  “It’s critical, when considering green tech, to examine the subsectors. Not every element of green tech is prospering. Do your homework and run the numbers. Start there.”

Private Equity in the Restaurant Sector: Hot or Not?

The formula for success in restaurant investment seems more art than science—and many middle market PE firms have demonstrated they perfected it in international markets during 2015. Successful restaurant franchises are scalable, revenue generating machines that can be replicated across both domestic markets and overseas. The entity may start with three or four profitable brick­and­mortar locations, then build credibility and hone their model by launching ten to fifteen additional stores. Planning for new, potentially international markets may be the next logical step—and the perfect time to roll out the red carpet for PE firms.

Franchises that have expanded internationally have experienced extremes in performance. Domino’s Pizza Enterprises entered the Japanese market, “quickly became the number two player”, and is predicted to become number one, according to an interview with Chief Executive office Don Meij by CNBC. G rowth has been strong and impressive —t he franchise reported a 48% increase in profit over a twelve month period in 2014. Creative marketing campaigns and revenue streams have been launched and, as the numbers show, made quite an impression on a sizable, hungry audience.

Other brands have flopped, failed or floundered by underestimating the demands of an international venture, sinking robust investments into operations and supply chain logistics, and failing to customize their offerings to the culture of the market. Recent changes in the global foodservice market include Yum! Brands announcement that their locations in China would become independent, publicly­traded franchises. This announcement was made after Yum! brands made headlines regarding food safety issues.

According to LEK Consulting report volume XVI, Issue 45, most countries remain (outside of the United States) “sharply underpenetrated” by chained quick service (QSR) restaurants, and casual dining restaurants (CDR). India has the fewest QSRs, with only seven units per one million people above the poverty threshold. To put this in context, the United States has 516 QSR units per one million people above the poverty threshold. In developing a formula for international success, however, many more variables must be considered, such as lease prices, availability of prime locations, operations and supply chain expenses to name a few.

“The growth of private equity’s role in the foodservice sector—and its sub­sectors—has been remarkable. Multiples have been strong, acquisitions have been plentiful, and it will likely prove to be a sector to watch again this year,” states Alfred Zaccagnino, Founder and CEO of The Samarian Group of Companies, a boutique private equity firm headquartered in Manhattan with a growing international presence.

The uptick of PE activity within this sector is reflective of its appeal. Top restaurant companies are selling for 10 times their earnings, an attractive multiple to PE. But new markets—and companies—must be tested, analyzed, and vetted before the leases are finalized and the signs go up.