In renewable energy projects, as with most other projects, a lender or investors’ return on investment is most often a result of good risk and reward planning. The return on investment (ROI) is very much a direct result of having industry expert risk and reward planning. While evaluating the risk and reward purely as figures on paper is something with which most investors have many years of experience. But, as they note in the computer industry, “garbage in, garbage out”. The equations are not difficult, but making certain that the inputs and figures used to make those determinations can be a great source of uncertainty and difficulty.
The bioeconomy, like other investments, follows the general rule that the more risk a buyer is willing to assume, the more reward he or she or he should command. As with any specialized project, it is always good policy to engage an independent third-party professional, with industry experience, to do techno economic analysis and possibly even a valuation. A good due diligence process or business valuation can uncover risk and potentially lower the deal price for the buyer and increase returns.
As the bioeconomy is seeing more acquisitions, it is important to note that as one evaluates any potential acquisition target – whether it is a renewable diesel, biodiesel, ethanol or other plant, or a new technology, you should consider putting professionals on your team early in the process to assist in one or both of the following: Buyer Due Diligence and Valuation.
Buyer due diligence is designed to focus on the key areas the buyer or investor would consider most risky. These will include quality of earnings, quality of revenues and revenue recognition, add-backs and EBITDA adjustments proposed by seller, estimates, quality of working capital, tax matters, including state and local reporting, inventory and machinery valuation, and earn out considerations.
Depending on the nature of the potential transaction, you may also want a business valuation as they may assist in formulating an offer on the stock or assets of the business or assist lenders or other stakeholders in gaining confidence in a deal.
Lee Enterprises Consulting is the world’s premier bioeconomy consulting group, with over 100 highly qualified experts serving in technical and economic specialties. Take a look at our experts and the services we provide. Most of our experts are also available to advise and serve as expert witnesses in bioeconomy litigation matters. For the larger projects, we specialize in putting together full service, interdisciplinary teams with one point of contact. Call us at 1+ (501) 833-8511 or email us for more information.