ICM Manager: Lime Rock New Energy
Impact Theme: Environment + Sustainability
Investment Date: October 2020
Exit Date: December 2021
Exit Type: Strategic Buyer
Acquirer: Schneider Electric
Disclaimer: This case study is being provided as a successful example of a partnership between a ICM member fund and a portfolio company in the clean energy sector. It is not intended to be, and should not be construed as, a solicitation to purchase securities of any Lime Rock fund.
Lime Rock New Energy (LRNE) partnered with electric vehicle (EV) charging station provider and installer Qmerit after identifying the company as an important and fast growing enabler of faster, easier, and cost-effective EV charger installations for consumers and light commercial customers. LRNE views the services provided by Qmerit as critical to speed widespread adoption of electric vehicles.
Lime Rock New Energy is a growth equity firm that partners with entrepreneurs and management teams from companies providing products and services for the energy transition, including in renewable energy and grid modernization, energy efficiency for industry and the built environment, and the decarbonization of transportation. LRNE identifies investment opportunities for growth capital with companies that have a track record of commercial success and have a clear plan to grow future revenue and market share.
LRNE accessed the Qmerit opportunity through a referral from their professional network. Qmerit is at the forefront of the shift away from fossil-fuel powered systems towards the electrification of everything. Qmerit does this primarily by connecting the key stakeholders across the EV ecosystem, such as EV manufacturers and their dealers and the end consumer, to deliver and install Level Two (L2) charging stations at residences and businesses. Qmerit partners with the leading electric vehicle and electric vehicle supply equipment manufacturers and leverages Qmerit’s vast network of company-owned and certified partner electrical service contractors, to provide simple, turnkey electric charging solutions for homes and commercial workplaces. Customers of major EV manufacturers, who will often receive a L2 charger and associated installation as part of the purchase price of the car, can simply take a picture of their garage and electric panel, send it to Qmerit, and receive a professional EV charger installation within a few days.
At the time of LRNE’s introduction to the company, Qmerit was a small investment within Schneider Electric and included a separate, somewhat unrelated ecommerce business. Schneider believed that Qmerit’s potential was buried in their corporate structure and was seeking a private equity partner to move the company forward. LRNE vetted Qmerit through an extensive diligence process that started with asking two screening questions: can this company generate net positive environmental impact? And if so, can we measure it? After answering both in the affirmative, LRNE moved forward with an initial quantitative assessment of Qmerit’s carbon abatement potential using the CRANE(Carbon Reduction Assessment for New Enterprises)Tool, a free tool provided by Prime Coalition and RhoImpact to estimate climate change impact, which LRNE uses as its baseline assessment tool. As is standard practice at LRNE, the Bridgespan Group was engaged to jointly develop a detailed impact analysis and impact pathways assessment for the Qmerit investment.
The primary impact pathway identified for Qmerit was making the challenge of the selection and installation of EV charging equipment and capabilities in the home or office, which is a key barrier to widespread EV adoption, easy, quick, and safe. By supporting easier and faster EV charger installation, Qmerit would help accelerate the speed at which EVs are adopted. LRNE and Bridgespan developed the impact pathway framework and employed third-party research and others to provide the tool to measure and quantify the CO2 abatement impact from Qmerit’s services based on the actual and expected number of chargers installed by Qmerit. More subjectively, the analysis was also used to validate the importance of easier, faster availability of convenient charging capabilities as a key enabler of EV adoption and the resulting decarbonization impacts from increased EV penetration.
Qmerit had ambitious growth targets to build a strong nationwide network of electric service contractors and generate more partnerships with major EV OEMs. LRNE developed a close partnership with the company and was heavily involved with helping Qmerit achieve these targets. Over LRNE’s 14-month ownership period, Qmerit saw substantial growth. First, LRNE assisted Qmerit inclosing six acquisitions aimed at building the company’s network of Qmerit branded local installation providers in high-growth EV markets. By the time of LRNE’s exit, Qmerit had gone from having partnerships with four or five EV OEMs to almost every EV manufacturer in North America, boosting its brand recognition as a trusted third-party service provider. Qmerit also made substantial headway in growing its share of the commercial/multi-residential property market. This was a significant goal for the company, as it would enable higher and faster levels of EV adoption.
Qmerit grew very quickly in a short amount of time through a combination of both organic and inorganic growth and, critically, via strong and effective stewardship by its management team. LRNE saw the impact potential of Qmerit’s business and felt strongly that the management team had the experience and expertise to create a category leader. As a growth investor who values working with management teams, LRNE ensured that it was well placed to help Qmerit both grow its business, but also meet LRNE’s ESG objectives for its investments. LRNE will not make an investment without a board seat, whether a minority investor or not. Further, LRNE always includes language in its term sheets discussing their commitment to impact and ESG and its expectations for portfolio companies to continuously work towards improving ESG practices, as well as providing ongoing access to impact-related data so that progress on this front can be quantitatively measured.
Happy with their successful partnership with Qmerit and impressed by its growth, LRNE was not looking to exit the investment when it was approached by Schneider Electric to acquire Qmerit. While LRNE was not interested in selling Qmerit so early into its investment period, Schneider made it clear that it was very interested in the business and indicated a willingness to acquire the business at a price that was sufficiently attractive to LRNE to part with Qmerit. LRNE ultimately moved forward with the sale for two reasons. Firstly, given the attractive financial return promised by the sale, LRNE had a fiduciary duty to its investors to seriously consider the offer. Second, LRNE felt comforted in the knowledge that Schneider has demonstrated strong leadership in sustainability across its entire business, appreciated Qmerit’s impact potential, and would be focused on maintaining and growing the impact delivered by Qmerit as one of its stated corporate goals. Since the sale, Qmerit has accelerated its impressive growth and further penetrated the EV marketplace.
For Qmerit, a strategic buyer with prior knowledge of the company, a complementary corporate strategy, and the ability to accelerate its growth created an ideal home for the business. LRNE Managing Director Mark Lewis believes that Qmerit serves as an instructive example of how the combination of innovative business models and growth capital can result in financial success for investors and contribute to the fight against climate change.
“The passage of the Inflation Reduction Act is a landmark moment and the IRA’s market incentives are still playing out in various interesting ways, with more upside expected. We’re continuing to put capital out the door; our outlook continues to be bullish.”
Driver #1: Source investments through mission-aligned networks
Driver #3: Build values alignment with investees
Driver #9: Establish credibility with impact-driven stakeholder
Financial Return Summary
Total Investment Amount $43M
Performance vs. Underwriting Case: Outperform