Attracting the Strategic Investor

May 20, 2011 |

One man's waste collection truck is another man's feedstock aggregator

A conversation with Waste Management’s Tim Cesarek — looking at WM’s strategic investment goals, methods and progress

Over the past two years, Waste Management has made a formidable series of investments in technologies for converting municipal solid waste into energy and other bio-based products, among them S4, Enerkem, and Terrabon. This past week, WM announced a strategic investment in Agnion.

So what exactly makes a technology attractive to a strategic investor like Waste Management? How does a company get on their radar? Are they still looking for technologies of interest? To answer these questions, the Digest spent time this week with Tim Cesarek, head of WM’s Organic Growth Group.

Agnion and Waste Management

BD: Tell us about Agnion, and what attracted you to the technology?

TC: As you think of thermochemical technologies, this one fits in at the 7-10 tons per day level, that’s small relative to Enerkem. Now, it’s a unique unique thermo chemical process that can take the combined heat and power a gasifier can capture. You know there’s heat loss with syngas, so you find user of steam or heat, it becomes a model that hangs together and makes sense. It’s a rung lower than S4, and another rung lower than Enerkem. Enerkem is focused on liquid transport fuels, while S4 has application for power markets. Agnion is more about heat and power.

BD: Potential customers?

TC: It’s highly distributed, a natural for Italy or German where there is a lot of city-wide steam. We also see we see a unique fit and some leverage with our municipal customers. Also, universities, hospitals, industrial complexes, or prisons that may be looking for a solution.

BD: Since it’s small, how much higher is the capex and opex. Affordable?

TC: It’s a more distributed gasification system, but it’s very capital efficient compared to a per KW capital use in biomass boilers, or incinerators. Based on that capital efficiency, and a range of tip fees, you can produce power and heat at reasonable rates.

BD: As a distributed generation opportunity, how compact is the Agnion system?

TC: It’s small. 6000 sq foot foot print, which includes the gasifier and power to produce electricity.

BD: Aside from a compelling technology, what attracted you to Agnion out of the hundreds that might contact you?

TC: They’ve got a great list of investors , such as Kleiner, and a strong management team. Their CEO comes from Mann, a German company in the business of building power plants.

Picking investments

BD: What about companies in general?

TC: You look for companies that have the ability to scale, the management team, and a technology based in scientific fact. We also look at the shareholder base, our ability to monetize, and how significant or game changing the technology can be. The fundamentals.

BD: Preferred stage of development?

TC: By this time, they have evolved from a technological stage company, to more of a commercial stage company, which is our preference.

BD: How do you find technologies, or do they all find you?

TC: It comes from the ability to develop relationships with VC and entrepreneurs – firms we have invested with before. VC funds are a source of opportunities for us, and we have a tremendous amount of respect for the venture community. Also, entrepreneurs call us and we screen. In some cases, as it relates to downstream, we talk to companies like Chevron or Total, about a fit where MSW is a feedstock, or other petrochemical companies where MSW is an alternative.

Waste Management and the value chain

BD: How do you see WM in the value chain for waste to energy?

TC: MSW, I look at as an alternative to oil, and we do a great job of managing that upstream. We partner with those who build out technologies, and downstream with partners to provide the specificity on the end product.

BD: You describe it in oil company terms – upstream, midstream, downstream – is that a conscious way of thinking of WM as an alternative to an oil exploration company?

TC: I am not consciously aware of emulating oil companies, but we have to think economically like them. We both turn feedstock into a commodity, where you have pricing according to the alternative, and unless you have some unique attribute, you have to be the lowest cost producer. So we are both intensely focused on economic value.

BD: The value proposition for your customers?

TC: At the end of the day – no different than the plastic recycling industry today. People that have significant volumes of commodities, expect to share in that value. The opportunity is there, though – we believe we can take the feedstocks and create material to be worth $400 ton. As long as the material stream is of greater value, economically it can make sense, and also in terms of a sustainability plan.

Managing investments

BD: You have assembled a fast-growing set of investments in the portfolio. How closely do you manage your interests?

TC: If you are bringing capability to the opportunity, you increase your probability of success. Businesses that further away from our core, we let them be entrepreneurial. There, we are one voice among the board, and we let them drive the bus. Businesses that are closely related to our core, we might have people from our technology team. But you can stifle the entrepreneurial base if you try to squelch it. You can’t plant a seed and then dig it up every day to see how it is growing.

BD: So, how do you measure?

TC: We are very milestone driven in both financing and technology progress, like a venture fund, but we can’t keep digging it out of the soil, we want to let it grow.

BD: How many investments will you eventually do – are you done, a few more, many more, is there a limit?

TC: We are not constrained in the portfolio like a venture fund, where we are not going to expose ourselves to more than a certain percentage on a given investment, and feed the winners while we cull out the herd. We are not a portfolio in that sense. But we always are aware of those game changing technologies, and I think it is intuitively obvious what we are trying to accomplish. I wouldn’t say that we are done, because people are going to create more novel ways to create value out of the unique characteristics of waste material streams.

Print Friendly, PDF & Email

Tags: , ,

Category: Fuels

Thank you for visting the Digest.