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The Unicorn Rollup: How Graanul Invest hit $500M+ in sales and exited to Apollo
Woodchips from Eastern Europe? That's worth $1 billion
Alex Prokofjev
July 20, 2023
Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions.
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At RollUpEurope, we mostly write software and services serial acquirers.
That said, our calling card is first and foremost entrepreneurship through acquisition. It doesn’t really matter what type of industry you are consolidating – as long as you are creating shareholder value in a sustainable manner. SaaS, Youtube channels – or wood pellets, for that matter.
Which brings us to Graanul Invest: an Estonian biomass producer that navigated formidable obstacles to achieve a $1B+ exit to Apollo Global Management - in 2021.
What is Graanul Invest?
Most of our readers are familiar with Estonia and its technological prowess. Less known is the fact that Estonia is an energy powerhouse.
Estonia is the only country in the world to have commercialised large-scale extraction of oil shale, which supplies over half of its electricity generation.
Estonia also boasts the EU’s 4th highest forest cover, at 54% of total area. The neighbouring Latvia comes 5th, at 53%. And Graanul Invest found a way to get all that biomass to global markets.
In under 20 years, Graanul metamorphosed from a startup to Europe’s premier wood pellet producer, commanding an annual production capacity of 2.7 million tons. That’s over 10% of Europe’s consumption, and enough to fill the Wembley stadium in London.
In 2021, Graanul generated revenues of €454M ($537M) with an EBITDA of €126M ($149M): a healthy 28% margin. Looking back, the business had delivered 10-year (2012-21) CAGRs of:
Production volume: 16%
Revenue: 18%
EBITDA: 22%
Source: RollUpEurope analysis
How did Graanul achieve such an extraordinary feat without tapping institutional investors along the way, or being picked off by the larger, better funded competitors?
There are 5 lessons:
Disciplined M&A: right place, right time
Stay under the radar, keep 100% of the equity
Long-term contracts with blue-chip customers
Block out the noise!
Maintain allure for Private Equity investors
Read below!
Lesson #1: Disciplined M&A: right place, right time
From the outset, Graanul sought to accumulate production capacity in the belief that demand for biomass would keep surging. That bet has paid off. Between 2010 and 2020, Europe’s (incl. the UK) pellet consumption had more than tripled.
Along the way, Graanul focused on not just locking up supply from key producing regions (particularly Northeastern Europe and Southeastern US), but also on vertical integration, including:
Building combined heat power (CHP) plants next to production facilities to reduce energy costs
Securing feedstock supply i.e. forests
Securing distribution i.e. ports and cargo ships
Crucially, Graanul’s founder Rail Kirjanen (pictured below) is highly skilled at opportunistic M&A. He took advantage of the global financial crisis to consolidate his position by buying the stake held by a local private equity firm that went under.
In 2015, Graanul acquired a Latvian pelleting plant from a Swedish conglomerate that was looking to reduce its exposure to the region. Graanul paid 7x EBITDA. Not bad for an asset producing €15M EBITDA!
The picture that emerges from analysing these transactions is of a highly disciplined, patient acquirer. As Raul Kirjanen, Graanul’s founder said in the aftermath of the Texas Pellets transaction: “We have been looking for a suitable opportunity to start pellet production in the US for over 10 years”.
Source: RollUpEurope analysis
Lesson #2: Stay under the radar, keep 100% of the equity
With consistent (and growing) profitability, Graanul’s three shareholders managed to retain full equity until the sale. After the sale, they held onto a 20% stake, as well as 100% of Graanul’s substantial forest and biochemical portfolio, valued at €105M.
Lesson #3: Long-term contracts with blue-chip customers
The majority of Graanul’s sales are through long-term (4-5 years), take-or–pay contracts with European utilities, such as Drax, RWE and Orsted. All 3 have been Graanul’s clients for more than a decade. While Graanul’s contracts tend to be on a shorter side compared to its competitors, such as Enviva (13+ years), this allows for more frequent pricing renegotiation.
Lesson #4: Block out the noise!
Graanul’s sale coincided with the post-COVID ESG bubble, since amplified by the Ukraine war and its knock-on effect on European energy supplies.
