ESG AS A KEY PILLAR OF VALUE CREATION. TURNKEY CASE STUDY IN VALUATION UPSIDE.
7th April 2021
At Turnkey, we understand that the ultimate goal for all private equity is to maximise value for investors through successful exits. We also believe that ESG should not be considered simply as a cost against the bottom-line, rather a key pillar of value creation.
Robust ESG drives valuation upside
Demonstrating a clear and robust sustainability strategy, supported by real data and quantifiable actions, can have significant positive impact on the operational performance and risk management of a business. This ultimately manifests at exit, in terms of both expediting deal due diligence and the valuation achieved.
Our experience with Private Equity
We have been working closely for several years with a number of high profile international private equity. We are delighted to be able to share some real life ESG insights from one of the portfolio companies of CVC that we worked with throughout the investment cycle from acquisition to exit; Softex Indonesia.
Initial phase – Laggard to Leader
- Implement a sustainability strategy
- CVC invested into Softex in 2015 and pushed ESG as a key enabler of value creation
- As CVC’s trusted ESG partner, Turnkey was engaged to support Softex on its ESG journey
- Turnkey supported Softex by streamlining its ESG strategy to quickly deliver tangible financial benefits out of measuring their sustainability performance by the following:
- materiality assessment,
- sustainability training sessions for Softex employees,
- ESG data collection, reporting and advanced analytics via Turnkey’s software,
- creating Sustainability Roadmap and ESG Strategy Framework,
- support in achieving internationally recognised sustainability certification.
- Despite initial resistance, the first phase of the ESG program identified c.$0.25m of structural annual cost savings based on analytics from Turnkey’s ESG Sustainion Platform.
We brought in Turnkey to do an energy audit and they found $250,000 of savings. That was the trigger to convince the [Softex] CEO that someone could come in from outside, tell him about opportunities, and they were credible.
Ultimate outcome – realising value enhancement
- Softex progressed from being ESG sceptic to taking a leadership position within their industry sector and in South East Asia region, winning numerous ESG leadership awards.
- In 2020 the business was sold to US multinational Kimberly Clark.
- Deal valued at $1.2b, giving CVC a 3.3 money multiple at an IRR of 40%.
- Kimberly Clark sited the sustainability profile and policies of Softex was a key driver in expediting the deal.
Key takeaways for Private Equity
- Deal execution risk – Softex sustainability credentials enabled a smoother due diligence process from Kimberly Clark’s.
- Deal valuation upside – The operational efficiency cost savings combined with the valuation upside significantly outweighed the cost of the ESG program that was introduced.
Turnkey helps us to drive an ESG strategy into our portfolio accounts and achieve transparency of data across our client network. By using the Turnkey Software and Analytics, our clients are able to reduce their environmental impacts and associated operational cost, while strengthening their competitive advantage.
Environmental, Social & Governance (ESG) Tracking & Metrics – A Better Way Forward
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Real Life Environmental, Social & Governance (ESG) Insights from a Private Equity Client