Enviro: Fantastic and long-awaited news

Research Note

2023-03-30

06:00

Redeye is positively surprised by the fact that Enviro will establish a JV with Antin Infrastructure Partners (one of Europe's largest private equity firms within infrastructure investments) and, in the future, Michelin (the top 2 largest tyre manufacturer in the world). This means Antin will bring capital and its expertise in scaling infrastructure platforms, while Michelin has signed multi-year supply agreements for both recovered carbon black (rCB) and tyre pyrolisis oil (TPO) – which will all be combined with Enviro’s patented technology. This is the news we have been waiting for since 2020, and we believe this structure gives Enviro a solid foundation to execute its growth strategy of deploying plants capable of handling 1m tons of end-of-life tyres per annum by the end of 2030. We provide a summary of the press release in this research note while sharing our thoughts on the announcement.

Mattias Ehrenborg

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Yesterday, at 17.45 Swedish time, Enviro press released it is forming a joint venture (JV) with Antin Infrastructure partners to create the world's first large-scale tyre recycling group, supported by Michelin. We summarize the press release as follows:

Antin, a European-based private equity infrastructure firm with an AUM of EUR30bn, will secure initial investments in the JV.

Enviro intends to review Enviro’s long-term capital needs to fund the ownership of the JV as soon as possible over the coming 24 months.

Enviro will have no initial ownership in the JV but has the option to acquire ownership corresponding to 30%.

Enviro will receive revenue through service fees and an “asset fee” (based on the profitability of each plant). And in the future as a minority owner in the JV.

The first commercial plant will be in Uddevalla, capable of handling 34.5ktons or 40% of Sweden’s total ELT supply. Construction start is expected H1 2023, and it is expected to be fully operational in 2025.

Site selection in other European countries has been initiated, with an aim to build capacity for up to 1m tons of ELT by 2030- or 1/3 of all ELT in Europe.

Enviro’s patented technology will be licensed to the JV exclusively throughout Europe.

Michelin is planning to join the JV as a partner as the future plants are built. The JV has also secured a multi-year supply agreement with Michelin for the first plants to be established. This agreement includes delivery of both recovered carbon black (rCB) and tyre pyrolisis oil (TPO).

Redeye’s thoughts on this announcement:

This is the news we have been waiting for since Enviro signed its first partnership deal with Michelin in 2020. We have been awaiting offtake agreements and funding for Enviro to be able to kick start its long-term growth journey and to capitalize on the untapped value potential end-of-life tyres offers.

Through a JV with Antin Partners, Enviro gets a financial partner with EUR30bn in AUM that has experience of scaling infrastructure platforms – which is exactly what Enviro needs at this point. Antin has a long track record of successful investments and a team of 200+ employees and is one of Europe’s largest private equity firms within infrastructure investments.

Furthermore, it grants Enviro the opportunity to receive royalties from the first plants without having to invest heavily. Still, it does not mean Enviro will give away its technology for free or without any investment, as it has the opportunity to acquire 30% of the JV in the coming years.

Furthermore, Michelin supports the JV by having signed multi-year supply agreements for both rCB and TPO, which de-risks the business case significantly while it provides significant predictability in revenues. Michelin is also planning to join the JV as a partner as future plants are built.

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