Nextracker's IPO

A good sign of what's possible for enduring businesses in cleantech

The IPO markets are back…sort of.

The IPO markets are back…if you’re a profitable clean tech company tied to a generational tailwind. The IPO window is not just open, premium valuations are also on the table.

Last week, Nextracker, a developer of horizontal solar tracker technologies, IPO’d after raising $638M in an oversubscribed process. That outcome highlights the market demand for enduring business models in sustainability.

The company sold 26.6 million shares of its Class A common stock at $24 apiece valuing the company at a valuation of over $3.5 billion. This was above the upper end of their indicated range of $20 to $23 per share.

The company also had a stellar first day of trading. It jumped 29% on its opening day of trading and has remained consistently above $30 in the week since.

The transaction provided a unique look at the premium businesses with a sustainability angle are able to command since it was a carve-out from another publicly traded company.

For those of you who are unfamiliar, scaled business lines are often carved out of parent companies when the belief is they would perform better as stand-alone units.

“Perform better” is a subjective term. It can mean better on a cash flow basis by removing the asset from a debt burden or other liabilities. It can mean simply getting the asset away from other non-performing lines of business. Or, as in this case, it can mean higher multiples as a result of scarcity and growth potential once the asset removes the anchor that is the parent company.

Nextracker was carved out of Flex by TPG Rise in a $500M transaction in February with an implied valuation of $3.0B. Flex is a contract manufacturing company providing comprehensive electronics design, manufacturing, and product management services to global electronics and technology companies.

Flex is currently valued at $13.1B with almost $30B in revenues - a .44x revenue multiple. These business models are typically valued on an EBITDA multiple, which for Flex is ~7x.

Nextracker’s current $3.5B EV on TTM revenues of $1.6B represents a 1.1x revenue multiple and an 18x EBITDA multiple. Both numbers are an almost 3x premium to the parent company’s metrics.

Part of this premium is profitability and growth, Nextracker accelerated to 21% YoY growth after an 8.8% revenue CAGR over the past 5 years and did so profitably.

We’ve known for a while that public markets crave sustainability-focused companies with durable business models. Unfortunately, those examples have been few and far between, and with SPACs it looked like they were still 3 years out.

With Nextracker, we have our first look at the premium a moderate growth (10%+), cash flow positive clean tech company could command and as any investor can attest, 3x isn’t bad.