Sustainable startups benefit from sunny media coverage, significant government subsidies and generous investment from Silicon Valley. But over the past few years, distress has emerged as a clear trend among some of these borrowers.
 
Some of these operators simply run out of money, others face insufficient market demand or struggle to make good on promises of ambitious solutions rooted in “disruptive” tech.
As a result, the asset-based lending world is seeing more liquidations of M&E, intellectual property (IP) and other assets from electric vehicle and battery companies, “green” packaging makers, experimental food producers, solar specialists and more.
 
Secondary-market demand for these companies’ assets can be significant. Earlier this year, Tiger Group’s Commercial & Industrial division auctioned $10 million in parts, tools, equipment and EVs formerly owned by Loveland, Colorado-based Lightning eMotors, which converted conventional, fossil fuel-burning vehicles into zero-emission EVs for fleets. Its operations were not continued after it entered receivership and was purchased by a third party. The bidder response included 40,000 page views, 309 registrants and 3,371 bids for 644 lots.
 
Here are a few additional examples of recent Tiger liquidations in the green/sustainable space:

• A court-ordered Chapter 7 bankruptcy sale featured assets from Lemnature Aquafarms’ $14 million production and R&D plants in Florida. The regenerative agriculture company had tried to sell plant-based ingredients – essentially, green protein from waterlilies – to the food-and-beverage and healthy nutrition markets.

• Another Chapter 7 sale centered on assets from green energy company Aqua Hydrex. The intended business model was to use electrolysis to extract hydrogen from water as a way to help decarbonize industrial operations, transportation and agriculture.

• Tiger sold the assets of Romeo Power’s 215,000-square-foot EV battery assembly plant in California as a turnkey sale to Mullen Automotive. The company specialized in assembling lithium-ion batteries for e-motorcycles, golf carts, side-by-side ATVs and commercial truck tractors. Its owner and biggest customer, Phoenix-based Nikola Corp., liquidated the plant after shifting to hydrogen-fueled trucks and taking its supply chain local.

In many of these sales, buyer demand is strong not only for specialized equipment and IP, but also for conventionally useful assets like gas-processing equipment, steel tanks, industrial robots and CNC milling machines.
 
The November 7, 2024 auction of assets and IP from “grid-edge” tech startup Veloce Energy is a case in point. The sale featured assets from Veloce Energy’s Loveland facility as well as IP that included trademarks, logos and two provisional patents. Veloce was known for creating a platform for deployment and operation of infrastructure such as EV charging stations, commercial solar arrays and industrial storage facilities. Some bidders vied for the company’s battery energy storage systems; others went after conventional tools, parts, welders, forklifts, transformers, inverters, oscilloscopes and test equipment.

Challenging Business Models

Some experimental companies are unable to solve complex technical challenges and win customer adoption before their resources run out.
 
One Tiger private-treaty sale in the green packaging space featured inventory, molded-pulp manufacturing equipment and other assets from Zume, a global company that reportedly had raised $250 million for its business. Tiger also auctioned the Phoenix plant of manufacturer Zummit Plastics, known for producing both conventional stretch film and what it billed as the only biodegradable version of that product in the United States.
 
When operators have an unprecedented, moonshot-type process, auctioning their proprietary, highly specialized M&E and inventory can be challenging. In recent liquidations, such equipment has accounted for 20 to 30 percent of the assets on offer. In these cases, a piece of equipment that originally cost $1 million to design and manufacture could end up being sold for parts.
 
This reality necessitates frank conversations with the company early in the liquidation-planning process. In addition, when working with borrowers that have tried to revolutionize energy, agriculture or transportation, lenders need to ask pointed questions about the appraisal. That $20 million asset valuation might, in reality, translate into a much lower recoverable value.
 
All of that said, the sustainability space is full of newer companies with test modules, laser welders, CNC machines and industrial robots that are in excellent condition, or even still in the box, with tremendous resale value.
 
Willing Turnkey Buyers

The Fed’s new round of rate cuts notwithstanding, today’s higher costs are making it harder for some green/sustainable borrowers to survive. However, their larger competitors, often backed by opportunistic funds that look to pick up companies out of bankruptcy and receiver sales, can be eager to grow. Acquisition is therefore a potential route to new life for distressed companies in this space.
 
Recent turnkey sales executed by Tiger underscore healthy operators’ appetite for such opportunities. The list includes Tennessee-based green packaging manufacturer Genera’s acquisition of Zume and as noted above, Mullen Automotive’s $3.5 million acquisition of Romeo Power’s EV battery production assets. The potential value of IP such as patents and customer lists are often significant in such deals and should not be overlooked.
 
Future Opportunities

Efforts to make money by solving critical ecological problems and overthrowing paradigms in areas such as transportation, energy, agriculture and packaging will keep on growing, political pendulums notwithstanding.

Admittedly, some of these novel inventions will end up being dismantled and sold for parts and scrap. But others will retain substantial value and enjoy a second life among green and sustainable buyers – whether starry-eyed or truly innovative – that still want to change the world.

Savvy lenders and disposition firms can maximize this opportunity by taking a bifurcated approach to borrower collateral. They already fully grasp the potential recoveries associated with the universal M&E described above. Moving forward, they can continue to build their expertise and buyer relationships with respect to highly specialized assets as well.