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Business case

Acquisition of renewables assets

Context

In the context of the acquisition of a portfolio of renewable energy assets, both under construction and in production, our client requested that we perform financial due diligence jointly with business modelling. The assets were based in three EU countries, with a total installed capacity of 400 MW.

Key Takeaway

Our integrated financial and operational approach allowed us to (i) identify economic risks related to regulations on subsidies and priority of dispatch, depending on the technology and completion date; (ii) determine the target’s normalised historical earnings; (iii) identify and quantify other commitments and contingent liabilities; and (iv) obtain a valuation range through a Monte Carlo approach that was supported with other methods (NAV and transaction comparables). Our report and oral presentation to the board summarised the key risk and valuation insights for the transaction. Management highly appreciated our recommendations on how to best deal with each issue in the binding offer while maintaining a competitive price, which allowed our client to enter into exclusive negotiations and ultimately complete the transaction.

Accuracy Role

Our objective was threefold: (i) to gain an understanding of each project’s status, (ii) to review the financial affairs of the target in order to identify issues that could have a significant impact on the transaction value and (iii) to analyse the fair market value of the target based on the adjusted business plan. With this in mind, our analyses focused on the following: (i) Production assets – review of recurring revenue and EBITDA levels; review of the achievability of annual output; adjustment of management’s budget; (ii) Operation & Maintenance (O&M) costs – determination of the reasonableness of the assumptions underlying the projections based on both historical data and our proprietary benchmarks; review and identification of any contingent or off-balance-sheet liabilities that may become payable to the O&M operator; (iii) Net debt – review of net debt terms and conditions including specific performance and financial ratio covenants of the project finance; identification of any debt-like items recorded elsewhere on the balance sheet, including any abnormal items affecting working capital; (iv) Business modelling and fair market value – consideration of a probability factor regarding success, costs and delay for each project as they showed different percentages of completion; (v) Binding offer and SPA negotiation – drafting of price adjustment clauses; review of representations and warranties referenced in the financials; review of the dispute resolution mechanism.

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