How 120 workers made millions in KKR’s Australian carbon play

GreenCollar’s staff, whose primary job it is to help landowners with carbon abatement projects and match them with buyers for resulting carbon credits, were cut into the equity on day one, and would have been doing cartwheels when notified about the transaction on Monday afternoon.

The staff had about 10 per cent of the equity, which means they will be sharing about $75 million – in cash, with no lock-up periods, no deferred bonuses or clawbacks.

Australian first

That estimated amount excludes separate windfalls for co-founders James Schultz (still CEO) and Lewis Tyndall, who have their own bucket of money, and should see a wave of new millionaires on GreenCollar’s books.

GreenCollar’s widespread staff share scheme is understood to be an Australian private equity first – KKR is a bit of a pioneer with this sort of employee ownership scheme offshore, and signed off on it for the first time in Australia at GreenCollar.

It’s an interesting look into where private equity may be going, in an effort to more easily secure acquisitions and make more money for underlying investors.

PE firms are generally cashed up and looking for targets, all the while that labour markets are tight and the balance of power has arguably shifted to the worker.

Ten per cent is a meaningful chunk of equity to give to a portfolio company’s staff, but it is pretty easily surpassed by the gains a motivated workforce can make if they are all pulling in the same direction for their private equity owner.

It worked at GreenCollar – where financial investors, founders and the staff are all making money together.

The company has about 120 employees, of varying seniority and tenure. It is fast-growing, has about tripled in size in the past three years, according to co-founder and CEO James Schultz.

The longer-serving staff are likely staring at $1 million-plus paydays – or three to five times their salaries – all for a few laps around the sun with private equity firm KKR.

The smallest payments to any full-time staff were said to be worth about $35,000, which represented payments for relatively new starters.

Schultz says it was always part of the plan to have staff invested in such a way. Their surprise, though, would have been how much their little organisation was actually worth, and the fact they had made the money so quickly.

“I don’t see this as a bonus [for staff],” he said on Monday.

“It is the equitable way that we should be doing things; we should want people to share in the value they create.”

Skin in the game

It is the first time we’ve seen such a deal structure in Australia from a private equity firm. While it is normal and expected that executives in private-equity owned businesses have stakes in their companies, they are usually paid for (either in cash, rollover shares or sometimes via loans) and only for the key management, big revenue writers and the like. It is not normal to have an enterprise-wide program.

All that is left between the staff and their paydays is deal completion, due before the end of the year. The biggest outstanding item is Foreign Investment Review Board approval, which might not be an issue given GreenCollar is already part-owned by an offshore firm in KKR and counts Ontario Teachers’ as an existing shareholder.

KKR has used the same sort of employee ownership structure in other investments offshore. It recently signed all 1400 employees at Danish meat processor Frontmatec to a share scheme, while staff at former KKR portfolio company audiobooks publisher RBmedia were due to get 100 per cent of their annual salary (on average) on exit.

Perhaps the best known was Illinois-based CHI Overhead Doors, where staff received as much as $US800,000 each on exit.

In a statement on Monday afternoon, KKR dealmaker George Aitken said: “It’s been a fantastic journey. We strongly believe that an ownership mentality among employees can build a stronger culture, create a more engaging experience, and ultimately drive stronger business performance – and the results speak for themselves here”. He is head of Asia Pacific for KKR Global Impact.

It will be interesting to see whether such schemes catch on at a time when labour costs are high (and rising) and it is hard to find and retain staff.

Schultz says GreenCollar was in the process of putting its staff on an equity incentive plan when KKR arrived on the scene in 2020. The scheme only covered management at that stage, he says, and the founders agreed to sell down some of their positions to make more room for the employee ownership.

Staff would’ve realised they were on to a good thing last year when Ontario Teachers’ bought a 33 per cent stake in GreenCollar (including some shares from KKR) at about a $250 million valuation. Ontario Teachers’ and KKR accounted for two-thirds of the company’s shares following that deal.

The valuation has rocketed since – as the company grew and targeted adjacent services – and employees are laughing all the way to their financial advisers.

Will they stick around for Ontario Teachers’ time in charge? Schultz is confident they will. He says the business and the staff have plenty more things they’ve set out to achieve, including expanding offshore.