Q&A: Nick Knapp, CohnReznick Capital — Part I
CohnReznick Capital has rapidly established itself in power project finance and mergers and acquisitions, with particular expertise navigating complex tax equity structures, since its inception in 2008. Recognized as PFR’s Tax Equity Advisory Firm of 2017, the firm also advised on two transactions that won Deal of the Year awards (PFR, 5/21). PFR reporter Fotios Tsarouhis recently sat down with Nick Knapp, who took over as president of the company in January, to discuss the latest changes at the firm and his outlook for project finance and M&A activity.
PFR: You became president of CohnReznick Capital in January. How are you settling into the role?
It’s been good, it was a smooth transition. I was involved in the management side for the last couple of years, focusing on business management and infrastructure, performance management for the team, really just getting to a best practice point of measuring people and the business overall in a transparent way to drive performance optimization.
We’ve been growing pretty fast for the last five years and we had a true start-up mentality. As we continue to grow, the idea is to not mess with the entrepreneurial spirit but become a little more institutionalized, with areas of best practice business principles.
The difference now is that I can take ownership of all of that and be accountable for it. My partner Conor McKenna is also lock-step with me on company management. We have a very special team approach at CRC and we have been focused on overall team empowerment. The entire team has embraced it and really stepped up to share the management responsibilities. At this point, we have settled in with our full focus on high-quality deal execution and growing the business.
We’ve made some good internal adjustments. We also hired some strong supporting professionals around the management infrastructure such as accounting, budgeting and administrative items, which allows for more focus on the business growth and the overall team development.
PFR: How have your day-to-day and month-to-month responsibilities changed? Is there any overlap with your previous position or m.d. business still landing on your desk?
It’s still a good mix. There’s a change in that I have to report to some other stakeholders, such as working with the CRC board consistently. There are a couple of identified growth areas for us that I’m focused on, but the idea is that I’m going to still be involved on some of the larger, high-profile transactions with the clients that I’ve worked with and managed for years. I’m not going to disappear with that.
This industry evolves really fast and if you’re not, on some level, in the weeds, then your capability of being a good adviser and selling the firm’s capabilities is not as strong as it should be. So I think the better advisers are guys who really stay in the weeds and you’ve got to make enough time to see the big picture and make sure the firm’s growing in the right direction. When I look at our peers, the leaders of those companies are still doing deals and still involved with clients.
PFR: Even as you became president, CohnReznick Capital was involved in several sales processes that you were advising on. Will you be continuing in that role?
Yeah, absolutely, but there will also be an effort to empower the broader team to find the appropriate balance. Really trying to find the optimal balance to ensure I maintain or grow exposure to key client relationships with time remaining to help win the high-priority firm mandates. Ultimately, this means I will not lead as many mandates. I think that the transitional phase was really tough because there was a lot to balance with evolving variables, but a total team effort got us in a great spot quickly.
PFR: On the deals you will remain actively involved in, will it be at the same level of intensity as before?
For two or three, yes, and then the rest will move to a higher level. It’s a balance to make sure we have the right experience level that the clients demand and deserve but it will be more of a supervisory role and less of the deal lead. One thing is for sure—the changes will lead to overall improvements for our clients. We strive to truly be client-centric. It’s the foundation of what makes us who we are. When we make team decisions on transitional changes, we ground it with the key question of, “is this improving our clients’ situation?”
PFR: Is anyone taking over your former position?
Well, it’s pretty spread out. The way we work here is that we have one or two m.d.’s that focus on one silo, like special situations and restructuring. The rest cover everything, so in terms of M&A capability, and project finance capability, we cross over and we feel that’s the right way to do it. On a large M&A mandate you still have to be very well-versed on the project-level structuring side because in many cases everything’s built in terms of value from the projects up.
I think we’re around 50:50 in terms of revenue from M&A mandates and project finance mandates. We might have, at times, much more tax equity financings than we do M&A, so it’s good to wear both hats.
Gary Durden was a new m.d. this year and we have a couple directors that will be up for m.d. promotion this coming year. Will also likely have a senior m.d. hire at some point this year. The idea is to spread out all of these names and the ownership of these accounts to the broader m.d. group.
PFR: CohnReznick Capital has been busy hiring over the past year?
We have a good internship program out of Columbia and Yale’s renewable finance masters programs. That’s been really good for us—it’s a big part of our junior talent. We bring them on for the internship, which then feeds the permanent hires after the internship for the following year. We had a big group last year of five.
Everybody here is at capacity so there’s a recent push right now for hiring. There are five new additions that will be coming on to the team at the analyst and associate level. We also have a strong director starting in a couple weeks coming from a large bank active in tax equity investing.
We are opportunistically searching for a senior m.d. hire right now as well. This senior m.d. will cover both M&A and tax equity, and will also help to drive some of our growth initiatives
PFR: Any specific responsibilities for the senior m.d.?
Nick Knapp: Every year we take it to another level in terms of the types of mandates and the types of clients that we have so we really would like to get somebody at that 20-to-30-year experience mark to come in and help the overall business. The idea is that they will cover deals and specific accounts but they generally will be helping on all of our mandates and adding that expertise to the team to further improve our full-service investment banking advisory offering across all forms of M&A and project finance.
PFR: Where are you in the process for the more senior hire?
We have a couple of candidates that we’re working hard on but those senior-level positions take time to fill. We have a great team dynamic and we need to do our best to ensure it is a near perfect culture fit. The focus is somebody who’s in a current seat in this industry and has been for majority of their career. We don’t need that role, but I think that my goal, our goal, is to hit our potential and to really penetrate as much as we can over the next three years, and I think that’s a helpful way for us to continue to be the go-to adviser in the space.
PFR: So when this person likely to join CohnReznick Capital?
Probably within six months. We’re successful and able to grow without it, but we are really striving to hit our potential over the next three-to-five years. To do that, we will continue to evolve and adapt with a continuous focus on adding high quality talent across all levels in a smart and sustainable manner.
We will likely be expanding into broader infrastructure advisory and other areas of energy. As we expand into other areas, we are doing so in a manner that will not dilute our focus and passion in our core of renewable and sustainable energy, but the idea is to add a bit to that, to diversify, and to grow the business over time.
PFR: Would that include gas-fired project financing and M&A?
Yes. The key growth theme is to truly be full-service for our clients. This means across all banking and advisory needs within renewables, but also on the other areas of activity for our [independent power producer] and utility clients as well as our large infrastructure fund clients.
PFR: Are you guys going to make a big dive into coal?
We’re going to stay away from conventional coal financings, but we will be diving into the carbon capture, utilization and storage activity. We feel it fits squarely into our sustainability mission and we are positioned well to advise on these Section 45Q tax credit transactions with our firm’s deep and broad tax credit structuring and placement advisory practice.
PFR: Do you foresee an expansion of CohnReznick Capital’s geographic reach?
Our focus is definitely very heavy in the U.S. and will continue to be. That said, we are open to Canada, Mexico, and Europe, and currently pursing M&A opportunities in these regions. We will start to be a little more proactive on this and for us it’s about leveraging our current strengths and capabilities to find our niche in each of those areas.
In the U.S., we have a green niche we can build off in the fact that we’re good at structuring and executing complex U.S. deals. Internationally that’s less the case, where it’s more standard project finance deals without the tax equity structure complexities. So we see our play much more on the M&A side internationally, utilizing our deep U.S. and international investor relations.
Whenever there’s a change to the programs it creates opportunity for advisers, like if there’s a shift in the feed-in tariff programs in Europe, where it may look different over time. When those changes start to happen is when we can be a little more proactive and say there’s an area where people need help, and there is an increased value-add position for us. The idea is, overall, when we talk about broader energy and broader power and infrastructure, the focus is, “How can we create a competitive niche?” The market in the U.S. is extremely strong and we think it will be for years. The idea is not to dilute our growth and our expansion in the U.S. by expanding internationally before we have that same line of sight on a niche value-add play.
Check back next week for part II of this exclusive interview.