Due Diligence and Risk Analysis in Alternative Energy M&A Transactions
Posted June 4, 2019 in Articles
From wind and solar power to geothermal energy and biofuels, alternative energy is big business across the United States and around the world. As automakers look to keep pace with changing environmental standards, and as companies in industries across the board seek to reduce the size of their carbon footprints, alternative energy sources are taking on a position of heightened prominence in the global market.
For some companies, this means finding new and innovative ways to make use of alternative energy sources. For others, it means acquiring alternative energy assets and expanding into new market sectors. Regardless of how your company is seeking to gain access to alternative energy resources and what you plan to do with them, here are some key considerations to keep in mind when pursuing alternative energy-related M&A transactions:
1. Available Infrastructure
The infrastructure that is available to distribute oil and gas in most parts of the world does not yet exist for alternative energy sources. Will your company need to develop the necessary infrastructure? If so, does your company have the requisite human and intellectual capital? Or, will you need to work with a partner in order to maximize value? These are critical considerations that go beyond analyzing the terms of the deal itself.
2. Applicable Laws, Rules and Regulations
Just like oil and gas, the exploitation of renewable energy sources is heavily regulated in countries around the world. When pursuing an investment in alternative energy – whether sourcing, extraction, production, or distribution – it is important to critically assess all of the various laws, rules and regulations that apply. In addition to the potential for significant liability due to noncompliance, failure to thoroughly examine the legal landscape can also result in failure to identify limitations on the investment’s profit potential. Examples of potential legal issues include:
• Import and export controls
• Environmental laws and regulations
• Safe disposal of waste products
• Treaties and other international pacts
• Zoning and land use restrictions
Is there sufficient demand for alternative energy in the geographic region your company is targeting? While some consumers are drawn to the environmental benefits of alternative energy, this is by no means a universal sentiment. Before you introduce alternative energy into a new market, you need to make sure the demand is there (or that it will be there in the foreseeable future).
On the same token, you need to be aware of the competition in the local alternative energy sector. If demand exists, your company may not be alone in seeking to offer a supply. Prior to making a sizable investment, you need to know to the greatest extent possible that you will have a sufficient opportunity to grab hold of the market.
5. Domestic and International Conflicts
When it comes to energy investing, political considerations and other similar types of issues can have direct implications for private companies. From labor disputes to regional conflicts, there are several extraneous factors that may need to be considered.
Mithras Investments | Consulting for a Greater Advantage
At Mithras Investments, we provide strategic consulting for alternative energy M&A transactions in the United States and worldwide. For more information about our services, please call (305) 517-7911 or inquire online today.