More clean tech IPOs come to market, amid skepticism

Thu Mar 29, 2012 4:13pm EDT

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(Reuters) - Two clean tech companies plan to go public this week in what some see as a sign that the sector is starting to recover.

Solar inverter company Enphase Energy and clean fuel firm Luca Technologies both are due to price shares Thursday, and those offerings could pave the way for similar IPOs in coming months, experts said.

The sector is still reeling after large-scale bankruptcies last year by Solyndra and Beacon Power. Shares of other clean tech companies have performed poorly since their listing. In addition, the sluggish economic recovery has dampened enthusiasm for emerging industries.

Yet investor appetite is slowly coming back in the sector, as oil prices continue to climb and the clean technologies, everything from biofuels to solar, mature to a point where commercially viable products can be produced.

"We've been talking about clean tech for years, but now there are products out there so people are finally starting to use them and experience them," said Jay Spencer, Ernst & Young LLP's Americas Cleantech Director.

That has created an opening where numerous deals are expected to be launched this year.

"There's a push going on and a window right now for IPOs that we haven't seen in 18 months," said Ben Kallo, a clean tech equity analyst at Baird.

But this time around, investors are becoming more careful and looking for companies with proven technology and solid business plans, rather than those breaking into markets so nascent they barely exist today. "In the past, certain companies have gone public with technology that was only proven in a lab or at lab scale, but now investors are more discerning and are looking for young companies that have proven their technology at least near commercial scale," said Jim Schaefer, global head of renewable energy & clean tech and Americas head of power & utilities at UBS AG.

"Investors say: ‘I don't want to hear about a unicorn — I want to see a unicorn.'"

Last year, there were 54 clean-technology IPOs globally, which raised a total of $9.6 billion, according to clean tech research firm Kachan & Co. That was down from 98 IPOs, which raised $16.4 billion in the prior year. The majority of these offerings both years, however, were from China, where companies are looking to improve energy efficiency and reduce greenhouse gases in a country that is considered to be the world's largest polluter.

However, more venture capital money has been flowing into the sector. Global clean tech investment by VCs topped $9.1 billion in 2011, up from $8.2 billion in the year prior, according to industry research firm the Cleantech Group, which tracks clean tech investment.

"It's all about having a critical mass of these companies make it through the pipeline to the point where they make sense to the public markets," said Andy Garman, a managing director with New Venture Partners who focuses on energy and environmental technologies. "The next wave of clean tech might have more technologies that look like traditional IT companies."

The upcoming IPOs will further test the waters of an already fragile market.

"Some investors are saying ‘why do I want to invest in a market where I've already been burned?" said one banker who works with clean tech companies. "For some of these companies, it's going to be a tough sell."

Enphase, based in Petaluma, California, was forced to slash its IPO price this week to between $6 and $7 a share from $10 to $12 apiece. The company's products convert solar-generated electricity to standard AC electricity.

Meanwhile, Luca Technologies, based in Golden, Colorado, hasn't cut price expectations. It is looking to raise about $100 million by selling 8.5 million shares at a range of $11 to $13 a share. The company's products help draw more useable methane from hydrocarbon deposits in the earth.

Both trash-to-bio fuel company Enerkem and solar thermal company BrightSource Energy also set the terms for their public debuts last week, seeking to raise as much as $137.8 million and $182.5 million, respectively.

Additional IPOs this year are likely to come from a range of industries including smart-grid network providers, LED lighting companies and energy-efficient material makers, say bankers and analysts. Biofuel companies will also continue to tap the public markets as oil prices rise to over $120 a barrel and people look for alternative energy plays.

On Thursday, President Obama addressed the concerns many Americans are facing with skyrocketing gasoline prices, calling on Congress to repeal tax breaks for big oil firms. Investors are hopeful that a crop of new biofuel IPOs will perform better than past offerings did. Biofuels companies Gevo, KioR, and Solazyme which went public last year - and all of which were unprofitable at the time of their offerings - are now trading below their IPO prices.

Gevo and Kior, both of which priced at $15, were trading at around $9.68 and $12.85, respectively, as of Thursday afternoon. Solazyme, which priced at $18, was trading at $13.77.

Yet despite this weak performance, interest in clean tech remains strong among some investors, who see the sector maturing from its early days in 2007 with more established companies.

"It's been a challenging space broadly since mid-2011 but there are certain investors who want to play in clean tech still and have the risk profile to do it," said Terry Schallich, head of equity capital markets for Pacific Crest Securities who works with clean tech companies. "They're perhaps risk adjusting a bit more but there's still a high level of interest."

(Reporting By Olivia Oran. Editing by Alwyn Scott and Gunna Dickson)

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