Last winter I covered the industrial firms that best use M&A to infuse digital applications within their growth framework.

One of those companies I highlighted was Rockwell. That original deep dive can be found here: Rockwell Automation: Ready, Set, Go. In that post I wrote the following:

“Very few firms provide such context on their intent and area of focus for inorganic growth. Rockwell makes it pretty clear: acquiring at least $250M of revenue derived mostly from industrial software businesses over the next 3-4 years. The business units are simplified and the areas of focus for growth are well-defined. I expect Rockwell to be an active player in industrial technology M&A over the coming years. High growth start-ups in the space should develop relationships accordingly…”

They also shared their targets:

With all of that background, if I were to have a second title of this article it would be: “right on queue“.

Rockwell is acquiring Plex for $2.2 billion. Plex is an industrial cloud operator that helps manage more than 8 billion indsutrial cloud data points every day. If industrial operations are getting digitized, Plex plays an important role in capturing and storing that data. The company has more than 700 customers and nearly $160M in revenue in 2020.

If you look at the chart above, Plex fits very well within “Information Solutions” and “Connected Services” for where Rockwell was targeting inorganic growth. And with $150M+ in revenue, Rockwell is ~2/3rds of the way to their annual goal of their annual $250M inorganic revenue addition goal.

Metrics

Plex was acquired for 14x their trailing twelve month revenue figure. The median figure on the Bessemer Cloud Index is 17x TTM revenue and 30% growth rate. Bottom quartile growth rate is 19% and that earns a SaaS company a 10x multiple. Assuming some M&A premium, I would venture that Plex was growing around 15-20% annually. This is a great scale (meaningfully large) and growth rate for Rockwell. As always, they continue to execute on M&A.

Earlier this year, Energize announced the hiring of Kevin Stevens. Kevin joined us to get our Growth Fund efforts off the ground. To say he has been busy is an understatement. Today we announce the first of a number of hires dedicated to the effort. The job post can be found here.

Also, Kevin wrote this about the firm and role over on his website:

I had a hunch I was joining something special when I joined to Energize almost 6 months ago. My experience has surpassed even my highest expectations.

Now it’s your chance to become part our growing team. We’re hiring a Principal for our growth equity platform. The position will start Q4 of this year and will be based in Chicago.

With the semantics out of the way, it’s worth me explaining why Energize and what I think are a few of the best parts about this potential role. Here’s a sense of how we think and work internally:

• Quality is contagious. The little things matter and attention to the craft of investing are valued here. You have to enjoy being accountable to others.
• We do things our own way. We choose to be original and find creative solutions.
• We favor long-term thinking. The environment is fast-paced, and we execute with urgency, but always with the long-term in mind.

This role is an investing role on a potential partner track, but we’re also entrepreneurial at heart. As we look to build out our platform, we’ll expect you to think creatively in all aspects of our firm.

A few years ago someone wrote a post along these lines:

“every VC thinks the investors investing earlier than them is a gambler, and everyone after them is a quant, sleepy investor”

The statement gained attention as early stage investors claimed rigor and the later stage investors claimed excitement. I know my sweetspot- investing post technology risk and at the inflection of commercial adoption. It is where I can gain a competitive advantage and the stage where my “CRO” mindset can help out the most. This is also where Energize Ventures naturally invests: late Series A to Series C.

Just made my first pre-seed investment ever.

You super early stage people are CRAZY. 😜

— John Tough (@JohnJTough) June 7, 2021

For a host of different reasons, I made my first SUPER early stage investment yesterday. The entrepreneur was a spin-out from one of our portfolio companies and a number of his colleagues (and our portfolio company CEO!) also invested. The product is surprisingly commercially advanced but definitely way earlier than the Energize risk profile. I don’t intend to make these early stage investments often and I don’t have a pattern for consistent evaluation yet. What I do know is that ultimately I made the investment almost exclusively due to the entrepreneur and seeing his product skills at our portfolio company and his scrappiness with the new endeavor. Maybe that is the framework at this stage: entrepreneur 90%, big market 10%. I will keep you posted. And yeah, it is a little crazy.

With net zero emissions targets now the topic du jour across the corporate landscape, there is suddenly a ticking time bomb for these same corporates to neutralize their emissions at the specified 2030-2040 time frames. Most firms now realize that they won’t be able to fully eliminate hydrocarbons from their supply chain or materials. So, the next step for these corporates is to think about what other investments they can make to counter their carbon footprint. Enter the (usually voluntary) carbon removal marketplaces or renewable offset marketplaces.

There are a number of marketplaces that serve this need, but an issue for mass-market adoption has been:

a) Credibility of the project providers and the scale of offsets (over-promising or dubious metrics)

b) Technical exclusivity of the offsets (many projects are sold multiple times)

The above issues have caused for “greenwashing” and a slight distrust in this market that ultimately yields a highly unpredictable price on carbon removal or offsets. And uncertain prices keep the main customers (corporates, primarily) on the sidelines. The market needed a credible middleman/marketplace creator to accelerate adoption.

Enter NASDAQ

This is where Nasdaq’s entry into the space makes a lot of sense. Nasdaq manages one of the most complex, high volume transaction marketplaces in the world.. a stock exchange. Yesterday, Nasdaq announced the acquisition of Puro Earth and immediately brings the entire Nasdaq customer base (both the listed companies and the investors), the market-making technology know-how, and accreditation to the carbon removal ecosystem.

Who is Puro Earth?

Puro.earth, a leading marketplace for carbon removal. Puro.earth is the world´s first marketplace to offer industrial carbon removal instruments that are verifiable and tradable through an open, online platform. The platform already provides carbon removal services to some of the world’s leading corporations, including Microsoft and SEB.

Why could this be a smart deal?

The NASDAQ corporates will immediately trust that Nasdaq can solve many of the existing carbon removal issues. I am assuming that Nasdaq can leverage existing technologies and securities packaging techniques to provide accreditation and exclusive attribution for each carbon removal project.

Once there is greater comfort in exclusivity and attribution of projects, more buyers will enter the market. This will cause the market to reach a near-term steady-state supply/demand price structure. This price confidence will then enable more project developers (carbon sequestration, etc.) to initiate projects as the developers will have higher confidence in the RoIs for those prospective projects. Again, market settlements and price matching are a Nasdaq core skillset…

Net, a win for the ecosystem to see a true financial marketplace enter the carbon capture arena.

This deal wasn’t announced in late April so it isn’t exactly breaking news. But I have had more time to work through all of the ongoing dynamics in the supply chain for the energy and industrial transition.

There seem to be 3 key trends converging here:

1. Rapid consumer / corporate interest in transparent supply chains and the need to definitively source materials in a responsible way
2. Change in types of raw materials going into new products: minerals, other sustainable alternatives
3. Movement from just-in-time to resilient supply chain planning, which includes onshoring manufacturing

These are all foundational changes. At the same time the OEMs are realizing that just being in the manufacturing arena is a race to the bottom on margins.

I haven’t covered a number of the industrial M&A events over the past year. But a great company that was riding all of the above trends was Blue Yonder, and earlier this year Blue Yonder was acquired for $7 billion by Panasonic. Why is this an example of the future of supply chain? As described by their press release, Blue Yonder uses machine learning to help companies manage supply chains that connect factories to warehouses and retailers. Panasonic, one of the largest battery makers in the world (for Tesla) wanted to move from contract hardware into software and higher value add services. Blue Yonder had $1 billion of revenue with $344M of ARR at year-end. That means that Panasonic paid ~7x revenue or 20x recurring software revenue for the business. Panasonic is paying this premium because Blue Yonder will begin to move Panasonic’s industrial presence more into the data and software verticals. Smart move. Manufacturers realize that they need data and controls from process sourcing all the way to endpoint delivery. Being a manufacturing middleman is a dying position of the past. This may cause us to see more industrials re-bundle – but this time with software – after decades of disassembling behemoth and disparate manufacturing units.

I suspect we are going to see more industrials or OEMs seek inorganic growth by purchasing firms with access to supply chain analytics or firms that enable access to one of the 3 key trends identified above.