We are beginning to see significant capital flow into real asset businesses (where the primary investment and value creation is derived from tangible rather than intangible resources). In the last 24 months, roughly 51 SPACs have either gone public or been announced that are capital-intensive businesses focusing on the energy transition. These companies have IPOed for a combined ~$15 billion. Today, the combined market capitalization stands at ~$84 billion. The share-price of those firms has grown an average of over 200%.
The Rocky Mountain Institute, an energy-focused think tank, expects $40 trillion to flow into new low carbon assets before 2050.4 The critical link between all these investments, though, is that the companies involved are all either growing fast (some of them are young and growing fast), turning over their balance sheets quickly, investing heavily in next-generation processes and technology, or adjusting business models that in some cases (for example steel, bulk chemicals, cement, etc.) have not changed in more than fifty years. The world of capital-intensive tangible asset businesses, long considered boring compared to the exciting tech world, is fast becoming a driver of economic change.
Given the impetus and interest in financing solutions to combat climate change, paired with technologies in the energy, transportation, materials, and utility industries that appear on the cusp of large-scale commercial adoption, we feel comfortable stating that:
We have not seen this level of future growth in capital intensive industries for decades.
Investors searching for high growth opportunities have not had capital intensive businesses in their hopper of growth opportunities over roughly the same time horizon.
This has profound implications and raises important questions. Namely, how do you value high growth capital intensive tangible asset businesses?
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