2. Enhancing due diligence
Why it matters: Expanding transactional environmental due diligence practices beyond
the current focus on risk mitigation will help identify new opportunities for operational
improvement & value creation.
How we did it: The Carlyle Group, Environmental Defense Fund & The Payne Firm*
developed a flexible & scalable due diligence screen that enables investment
professionals to identify environmental opportunities that improve operations, reduce
costs & strengthen market positions of potential portfolio investments.
How it works: Investment professionals use the screen to evaluate how environmental
management can enhance the value of a new acquisition, inform the bidding process &
be incorporated into the post-acquisition management plan.
*For more information on Carlyle, EDF & Payne, see slide 14. 2
3. Why it matters
Expanding transactional environmental due diligence practices beyond the current focus
on risk mitigation will help identify new opportunities for operational improvement & value
creation.
Risk Cost Revenue
mitigation cutting growth
Risk mitigation Efficiency & cost- Revenue generation
opportunities cutting opportunities opportunities
Cost savings Revenue growth
Liability estimates
estimates estimates
Risk management Operational
Growth plan
plan improvement plan
Today Future
3
4. How we did it
Carlyle, EDF & Payne developed a flexible & scalable due diligence screen that enables
investment professionals to identify environmental opportunities that improve operations,
reduce costs & strengthen market positions of potential portfolio investments.
The EcoValuScreen was developed through a four-step process:
1. Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental &
1.
business performance of 327 current & legacy Carlyle portfolio companies.
2. Correlation of common business activities with environmental impacts: The
2.
portfolio analysis revealed a high correlation between environmental impacts & 10
common business activities that occur most frequently across Carlyle’s investment
sectors.
3. Opportunity identification: In addition, the analysis began to reveal specific initiatives
3.
to reduce environmental impacts of the common business activities while driving
financial savings.
4. Integration with due diligence process: The new EcoValuScreen is designed to be
4.
flexible, broadly applicable & easily incorporated into Carlyle’s current due diligence
practices.
4
5. How we did it
1.
Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental &
business performance of 327 current & legacy Carlyle portfolio companies.
Environmental Impacts1
GHGs Water Waste Forest Priority
Products Chemicals
Portfolio
Carlyle investment sectors Companies
Business Impacts2
Aerospace & Defense 25
Automotive & Transportation 19 Portfolio Supply Operations & Distribution Product Use
Companies Chain Facilities & Fleet & Disposal
Consumer & Retail 26
Industrial 50
Healthcare 32
Low/Med/High
Telecom & Media 41 impact
Technology & Bus. Services 134
Total (7) 327
1 Environmental impacts were evaluated across 5 key areas: greenhouse gas emissions, water use, waste production, forest product use & priority chemical use
2 Business impacts were evaluated across the entire value chain: including supply chain, operations & facilities, distribution & fleet, product use & disposal 5
6. How we did it
2.
Correlation of common business activities with environmental impacts: The portfolio
analysis revealed a high correlation between environmental impacts & 10 common
business activities that occur most frequently across Carlyle’s investment sectors.
Carlyle Investment Sectors
Aerospace Automotive & Consumer Telecom & Tech & Bus
Business Activities & Defense Transport & Retail Industrial Healthcare Media Srvc.
1. Resources, Ag, Raw
Materials, Energy
Heavy
2. Casting, Forging,
Industrials
Stamping & Melting
3. Chemical/Processing Indicates high
environmental
impact
4. Compounding
Light
Manufact.
5. Assembly, Forming
6. Services, Technology
Services
7. Construction
8. Fleet/Logistics
All Sectors 9. Sourcing
10. Facilities Mgmt.
6
7. How we did it
3.
Opportunity identification: In addition, the analysis began to reveal specific initiatives to
reduce environmental impacts of the common business activities while driving financial savings.
GHGs Water Waste Forest Priority
Products Chemicals
Project opportunity areas
Business Activities Cost Savings Revenue Expansion Risk Mitigation
1. Resources, Ag, Raw • Changes to fuel mix • On-site generation • Emissions compliance
Materials, Energy • Waste heat recovery • Excess tradable credits • Fuel & electricity supply
Heavy • Plant layout improvements • Co-generation • Emissions compliance
2. Casting, Forging,
Industrials
Stamping, & Melting • Waste heat recovery • Fuel & electricity supply
• Redesigned supply chains • Biofuels production • Emissions compliance
3. Chemical/Processing
• Waste heat recovery • Fuel & electricity supply
• Refrigeration • Composting, production of • Fuel & electricity supply
4. Compounding soil nutrients
Light • R&D Labs
Manufact.
• Right sizing of motors • Fuel & electricity supply
5. Assembly, Forming
• Data center analysis • Backhaul contracting
6. Services, Technology
• Logistics software • GHG consulting services
Services
• Improved maintenance • GHG consulting services
7. Construction
• HVAC, lighting, sensors
8. Fleet/Logistics • Driver training • Backhaul contracting • Car accident reduction
All Sectors 9. Sourcing/Procurement • Green procurement • Supply chain
10. Facilities Management • Lighting retrofits • Maintenance risk mitigation
7
8. How we did it
4. Integration with current due diligence process: The new EcoValuScreen is
designed to be flexible, broadly applicable & easily incorporated into Carlyle’s current
due diligence practices.
Target selection
The Carlyle Group:
Due diligence modules Key process grouping
Broad scan/issues &
opportunity identification
Selective deep dives
EcoValuScreen: Risk mitigation Cost cutting Revenue growth
Risk mitigation Efficiency & cost-cutting Revenue generation
opportunities opportunities opportunities
Cost savings Revenue growth
Liability estimates
estimates estimates
Operational
Risk mitigation plan Growth plan
improvement plan
Management Plan 8
9. How it works
Investment professionals use the screen to evaluate how environmental management
can enhance the value of a new acquisition, inform the bidding process & be
incorporated into the post-acquisition management plan.
The screen consists of a four-steps:
1. Scan: Scan the target company for relevant business activities.
1.
2. Identify: Use relevant business activities to identify an actionable list of operational
2.
projects that will enhance environmental performance.
3. Assess: Quantify projects’ benefits & identify highest priority environmental &
3.
financial performance initiatives.
4. Implement: Integrate initiatives into the post-acquisition management plan & share
4.
lessons learned across deal teams & funds.
9
10. How it works
1.
Scan: Scan the target company for relevant business activities.
Carlyle Investment Sectors
Aerospace Automotive Consumer
Business Activities & Defense & Transport & Retail
1. Resources, Ag, Raw
Automotive sector Materials, Energy
target company example
2. Casting, Forging,
• Powertrain casting division (Casting)
Stamping & Melting
• Parts production, assembly line
(Assembly, Forming) 3. Chemical/Processing
• Distribution fleet (Fleet/Logistics)
4. Compounding
• Sources 50% of parts from external
vendors (Sourcing)
5. Assembly, Forming
• 750 sales offices, 20,000 employees
(Facilities)
6. Services, Technology
7. Construction
8. Fleet/Logistics
9. Sourcing
10. Facilities Mgmt.
10
11. How it works
2.
Identify: Use relevant business activities to identify an actionable list of operational
projects that will enhance environmental performance.
GHGs Water Waste Forest Priority
Products Chemicals
Cost Savings Revenue Expansion Risk Mitigation
Casting, Forging, • Plant layout improvements • On-site generation • Emissions compliance
Stamping, Melting • Waste heat recovery • Excess tradable credits • Fuel & electricity supply
• Right sizing of motors • Fuel & electricity supply
Assembly, Forming
Relevant • Driver training • Backhaul contracting • Car accident reduction
business Fleet/Logistics
• Speed governors
activities
• Green procurement • Supply chain
Sourcing/Procurement
• Improved maintenance • GHG consulting services
Facilities Management
• HVAC, lighting, sensors
11
12. How it works
3.
Assess: Quantify projects benefits & identify highest priority environmental & financial
performance initiatives.
The Payne Firm, Inc.
Illustrative
Environmental & Financial performance initiatives
Project: Automotive Company Example
NPV Scenarios Environmental. Savings
Best Case Reasonable Worst Case Prob. Of
Project Description ($M) Case ($M) ($M) Success (%) Best Case Worst Case
Reuse scrap materials $25M $10M $5M 65 10,000 2,000
Waste Sell unused scrap $5M $2.5M $1M 40 10,000 2,000 Waste (tons)
Shared material buying $10M $4M $0 25 5,000 0
Driver training $30M $20M $10M 70 25,000 8,000
GHGs Speed governors $10M $5M $4M 30 20,000 9,000 GHGs
(tons of CO2 eq.)
Plant layout improvements $10M $8M $6M 25 10,000 6,000
Water Motion-sensitive water nozzles $10M $8M $6M 90 15,000 8,000 Water (gals)
TOTAL BENEFITS $100M $57.5M $32M
Total Environmental Savings Best Case Reas. Case Worst Case
• Waste (tons) 25,000 15,000 4,000
• GHGs (tons CO2 eq) 55,000 40,000 23,000
• Water (gals) 15,000 12,000 8,000
12
13. How it works
4.
Implement: Integrate initiatives into the post-acquisition management plan & share
lessons learned across deal teams & funds.
Illustrative
Project: Automotive Company Example
The Payne Firm, Inc. Illustrative Management Plan
Environmental & Financial performance initiatives
Grow revenue 10% through Asia expansion
Project: Automotive Company Example
Reduce cost 15% through supplier negotiation
Projected Projected
financial environmental Invest additional 5% of sales into R&D
Project Description savings $M savings Reduce waste and management costs 5%
Reuse scrap materials $10M 6,000 • Reuse scrap materials
Waste Sell unused scrap $2.5M 6,000 • Sell unused scrap
Waste (tons)
Shared material buying $4M 3,000 • Shared material buying
Reduce fuel usage and costs 10%
Driver training $20M 15,000
• Driver training
GHGs Speed governors $5M 15,000
GHGs • Speed governors
Plant layout improvements $8M 10,000 (tons of CO2 eq.)
• Plant layout improvements
TOTAL BENEFITS $49.5M
13
14. For more information
The Carlyle Group (Carlyle)
The Carlyle Group is a global private equity firm with $88.6 billion of assets under management committed to 67
funds as of December 31, 2009. Carlyle invests in buyouts, growth capital, real estate and leveraged finance in
Africa, Asia, Australia, Europe, North America and South America focusing on aerospace & defense, automotive
& transportation, consumer & retail, energy & power, financial services, healthcare, industrial, infrastructure,
technology & business services and telecommunications & media.
Since 1987, the firm has invested $59.6 billion of equity in 952 transactions for a total purchase price of
approximately $233.0 billion. The Carlyle Group employs more than 860 people in 19 countries. In the
aggregate, Carlyle portfolio companies have more than $84 billion in revenue and employ more than 398,000
people around the world. www.carlyle.com
Environmental Defense Fund (EDF)
A leading national nonprofit organization, Environmental Defense Fund represents more than
700,000 members. Since 1967, EDF has linked science, economics, law and innovative private-
sector partnerships to create breakthrough solutions to the most serious environmental problems.
EDF has a 20 year track record of success in partnering with business. To maintain its
independence and credibility, EDF accepts no money from corporate partners; generous individuals
and foundations fund its work. www.edf.org.
The Payne Firm (Payne)
The Payne Firm, Inc. is an environmental consulting firm that provides full life cycle services to private equity
sponsors to improve performance of their portfolio companies. The Payne Firm has served as the
environmental deal advisor in over 175 transactions with enterprise value in excess of $100 billion. The Payne
Firm is a member of the Inogen Environmental Alliance, a global network of 165 member offices in six continents
with over 4,800 professionals world-wide. www.paynefirm.com
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