This case study traces Australian Energy Limited (AEL) from the company’s initial formation through to divestment by its original founders. AEL was selected to feature in this case study as it is typical of companies that approach CFSG seeking end-to-end corporate advisory services including direct investment, capital raising, general business and mergers & acquisitions advice.

AEL, trading as Powerdirect, is a retail electricity company that focuses on supplying electricity to commercial users. The company is presently owned by AGL.

CFSG had a long and intimate involvement with AEL. CFSG nurtured AEL from its fledgling beginnings as a start-up company, through to IPO and ultimately to successful divestment. Over an 8-year holding period, the investment delivered the founders/shareholders an IRR of 119% (excluding dividends) and a Money-on-Money return of 526 times.

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The history of AEL and CFSG’s involvement in the company is set out below:

Year 1: Start-Up

• CFSG Services: Pre-CFSG involvement.

Year 1: Series A Round

• Details: AEL was founded by entrepreneurs Michael Norster and Jim Forsyth who were also Executive Director and Managing Director, respectively. AEL was established to operate in the deregulated electricity market as a retailer focusing on commercial customers. The founders invested approx. $50k of seed capital to establish the company.
• CFSG Services: CFSG was appointed as financial adviser to AEL. CFSG prepared an information memorandum and successfully completed the raising by placing it with its investor database. A CFSG representative joined the board. CFSG also invested directly in AEL.

Year 2: Series B Round

• Details: AEL required a further $625k in a Series B round as operations were stifled by Government delays in the introduction of electricity deregulation. The company incurred a trading loss of $1.5m and its equity value was approx. $1.1m.
• CFSG Services: CFSG assisted in the Series B funding round and invested additional capital. CFSG also worked with the board and management in formulating and preparing a long-term strategic plan for the company.

Year 3: IPO

• Details: AEL listed on the ASX in an IPO that raised $8m through the issue of 8 million ordinary shares at an issue price of $1.00 per share. At the time of the IPO, AEL had generated $1.28m in revenue and incurred an EBITDA loss of -$3.0m. AEL shares closed on debut at $0.95 and the company was capitalized at $28.6m. By financial year end, AEL shares were trading at $0.21 and the company was capitalized $9.46m.
• CFSG Services: CFSG provided financial advice in respect to the IPO and assisted in the selection of an IPO broker. CFSG’s board member sat on the IPO due diligence committee.

Year 4: Trading

• Details: Following full deregulation of the electricity industry, AEL enjoyed significant revenue growth but was still trading at a loss. In Year 4, AEL had revenues of $20.5m while EBITDA was a loss of -$2.68m. A founding partner, Jim Forsyth, was replaced as MD. AEL’s shares closed the financial year at $0.19 and its market capitalization was $8.36m.
• CFSG Services: CFSG provided on-going strategic business advice and monitored management’s performance against target milestones as set out in the strategic plan.

Year 5: Trading

• Details: AEL became profitable as customer numbers increased significantly and the company passed its financial break-even point. Revenues were $51.9m and EBITDA was $2.29m. The company’s shares closed the financial year at $0.27 and its market capitalization was $11.88m.
• CFSG Services: CFSG provided on-going strategic business advice and monitored management’s performance against target milestones as set out in the strategic plan.

Year 6: Trading

• Details: AEL continued to trade profitably with revenues rising to $70.9m on an EBITDA of $3.73m. AEL’s shares closed the financial year at $0.93 and its market capitalization was $41.74m.
• CFSG Services: CFSG provided on-going strategic business advice and monitored management’s performance against target milestones as set out in the strategic plan.

Year 7: Trading

• Details: AEL had revenues of $116.6m, a growth of 64.5%, while EBITDA had risen to $5.17m. AEL’s shares closed the financial year at $1.02 and its market capitalization was $50.69m.
• CFSG Services: CFSG provided on-going strategic business advice and monitored management’s performance against target milestones as set out in the strategic plan.

Year 8: Exit

• Details: AEL’s half-year results were excellent with revenue at $77.2m and EBITDA $3.28m. AEL was capitalized at $84.92m at the time. The board decided that it was timely to realise the value in the company for shareholders. Investment bankers were appointed to run a divestment Process. Offers were called and three parties submitted bids. A bid by Ergon Energy, a large Qld based energy distributor and retailer, was the successful bidder with a price of $1.95 per share. This capitalized AEL at approx. $100.3m inclusive of consideration for unexercised options. The parties agreed to implement the agreement through a Scheme of Arrangement. Financial close took place approx. 4-months after the Process commenced.
• CFSG Services: CFSG advised the board that it should consider realising the shareholder value in AEL. CFSG estimated that AEL’s growth would likely begin to plateau. CFSG recommended the board undertake a strategic review and that an exit through a trade sale to an industry player should be pursued. CFSG’s analysis confirmed that this would deliver the highest return to shareholders. CFSG introduced various brokers and investment bankers and determined which party should be appointed to run a process for AEL. CFSG oversighted the process and assisted in determining which offer should be accepted.

Our relationship with AEL is indicative of the close working relationships we seek to put in place with clients as we work with them to complete significant wealth-creating transactions. If you would like to have a confidential discussion about how CFSG can assist you in successfully growing the value of your business or in putting in place an effective sale process, please contact us.