On the spectrum of renewable energy projects, investments in solar and wind power are fairly common. But there’s an unsung hero in the renewable space: Anaerobic digestion converts organic waste, such as animal manure and coffee grounds, into byproducts that can be used to produce electrical power.
The few anaerobic digestion operations that exist in the United States are primarily in the development stage, and they present a rare and unique investment opportunity. Unlike traditional energy plants, which require operators to pay for coal, natural gas or other fuel to create electricity—or wind and solar facilities, which get their fuel at no cost from the environment—anaerobic digestion operators are paid to remove waste products to their facility for fuel. Among energy producers, they are fairly unique in generating revenue from both input (the fuel they use to create electricity) and output (the electricity produced).
Private equity firm Irradiant Partners sought an opportunity to invest in the innovative emerging market of anaerobic digestion by providing one of the few industry players in the US, Bioenergy Devco, with development capital. Irradiant tapped a cross-practice McDermott team, led by Chris Gladbach and Jim Salerno, to help structure and close the deal.
To help Irradiant achieve its business goals and invest in a more sustainable future, McDermott needed to close the deal rapidly while protecting the client from unnecessary risk. The short timeframe, coupled with the complexity of the deal structure and diligence, required a deep bench of skilled lawyers with experience in the energy industry and in executing platform development deals.
In close partnership with Irradiant, McDermott worked around the clock to successfully close the deal within an abbreviated period. During that time, the team handled diligence work, used their findings to calculate potential risks, developed a unique investment structure and successfully managed a number of complex legal and transaction issues.
Irradiant’s $100 million investment in Bioenergy Devco will support the development of multiple anaerobic digestion facilities, ultimately driving sustainable organic waste recycling and reducing greenhouse gas emissions in North America.
Because Bioenergy Devco’s anaerobic digestion facilities are in development and not yet operational, Irradiant’s investment demonstrated confidence in the company’s vision and management story, providing development capital on the corporate finance level to help propel the projects forward. However, the deal also featured aspects of project finance, with diligence review examining the state of Bioenergy Devco’s projects, stress testing their contracts and more. To accommodate the crossover between corporate and project finance, the McDermott team developed a unique investment structure for the transaction.
Deals of this size and complexity typically require four to six months to close. In Irradiant’s case, McDermott married principles of project finance and corporate finance—drawing on the experience and knowledge of a premier private equity practice, along with an energy and project finance practice that Law360 recognized as its Project Finance Group of 2021—to provide Irradiant with the legal sophistication and responsive, client-oriented team they needed to close the deal much more quickly.