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The IPO Is In the Details: Best Practices for Pre-Spinoff Yieldcos

Fourth Quarter – 2014

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Over the last year, several yieldcos have held successful IPOs—and for good reason. The yieldco is an effective way of providing early backers with an exit strategy for clean energy projects that have become operational, while offering the public an opportunity to invest in a burgeoning industry.

But moving from a portfolio of privately backed projects to publicly held company means taking on significant recordkeeping, reporting and compliance obligations. Investors looking to spin off a yieldco can make the transition a smooth one by having a full understanding of what is required and laying the foundation long before an IPO is contemplated.

Part of the challenge comes from the yieldco structure itself.  Yieldcos are effectively holding companies for groups of entities. Many of those entities may be operational now, but most began life as pre-commercial development projects. Often those projects will have had relatively weak accounting, reporting and IT infrastructures—or if they started strong, those back-office systems may not have scaled as the project moved into commercialization. This doesn't mean that pre-IPO yieldco projects have faulty accounting, but that often they don't meet the standards for timeliness and thoroughness of reporting that are required for components of publicly held companies. And because the yieldco must compile its figures from each of its holdings, weakness at the project level will reverberate higher up.

To counter this structural weakness, the pre-IPO yieldco must establish effective reporting, compliance and IT systems at the yieldco level, and then ensure that those systems are replicated at the project level. In practice, those systems are built on three pillars:

The right people: Evolving to public company status is an exercise in change management. The finance, reporting and IT teams need to be not just technically proficient but able to create the right culture and checks and balances necessary to ensure a new level of performance.

The right processes: Satisfying the expectations of public company investors in many ways boils down to having the right information at the time. Costs and revenue need to be accurately tracked at the project level and monitored against budgets and projections. The accuracy of those projections needs to be tested, and necessary revisions made to the forecasting process. And because many yeildco projects will have been funded by tax credits, timely reporting to tax-credit investors will be essential.

The right technology: Yieldco IT systems need to accommodate growth along two dimensions: As each project matures, the IT infrastructure needs to expand accordingly, and as the yieldco starts, acquires and divests of projects, the overall system needs to keep pace. A fully mature yeildco can have 140 or more projects in its portfolio, all at different points in the life cycle.

Ensuring that the right people, processes and technology are in place falls to the yieldco's management team. As with project-level leadership, the experience of yeildco management  can vary significantly. For those who are leading spinoffs coming out of major utilities, establishing the right team and infrastructure will be second nature. For them, the challenge is one of scale—they have to replicate the sophisticated back-office infrastructure the original holding company provided. For yeildcos backed by investment funds, however, the management team can face a significant challenge--running a portfolio of (privately owned) projects is no preparation for the prime-time scrutiny of a public company. That's the time to make heavy use of experienced third-party advisors, who can not only provide technical expertise but act as coaches throughout the transition.

Fortunately, the mantra of “people, processes and technology” holds equally well during the pre-spinoff phase. Indeed, there is no harm—and a great deal of benefit –in adopting that perspective long before an IPO is contemplated. Not only does it set the foundation for future growth, but it establishes a best-practices driven culture from the outset that will pay handsome dividends along the way.

For more information, please contact Jeremy Swan, CohnReznick principal, at or 646-625-5716.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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