Designed and executed valuation framework for Tier 1 business in APAC, to support transaction intelligence at global energy leader
The client, a leading wind energy supply chain player is front-runner in multiple global wind markets, wanted to establish a leadership position in the APAC market since 2016/17. Within APAC, the company is specifically focused on high growth India wind market and using it as a hub for targeting regional volumes. Despite multiple organic efforts, the client was consistently falling short of its targets around market share, therefore it eventually scouted for acquisition opportunities and identified a target. Their global corporate strategy and M&A team initiated due diligence for this target, including legal, financial, commercial and asset due diligence.
MEC was asked to support commercial and asset due diligence for arriving at the valuation of the player, including fitment of platform and assets to future trajectory of the markets.
To understand the potential of commercial platform of the target and its alignment to the future growth opportunities, MEC conducted 3 core analysis:
- Assessing potential domestic and international volumes in South Asia and building business case for supplying out of India
- Clear assessment of competitive position of the target around future customer needs and key success factors in the market
- Testing of management assumptions regarding market growth, operating model, pricing, margins and the ability to provide services around their product
The commercial due diligence clarified that a new normal has been set in India with a low price of EUR 30-35/kWh. The market volumes will be lumpy (in spurts) in short to medium term as power off-takers adjust to new reality, land becomes a bottleneck to impact prices, and grid availability issues come to the fore. International market in SEA will be fragmented and will be triggered sporadically varying by geography & timing.
The target’s commercial platform was assessed for readiness towards market shift and opportunity to optimize the setup were highlighted to the client. Additionally, client was provided inputs specifically on gaps in the management assumptions on pricing, growth, customer stickiness, cost profile, contribution margin, ability to export and localize for winning orders. The 360⁰ assessment enabled to understand the extent to which the new commercial platform will be able to support its growth targets.
The results of commercial due diligence were used as inputs to the asset due diligence to crystalize insights on relative usability of assets and appropriating valuation accordingly. MEC applied framework to segment the asset base on basis of commercial utility:
- Objective grading of assets based on maturity of asset and fitment with market demand timings/ geographies
- Investments needed to connect to market demand including plugging gaps in target assets and new asset acquisition
- Ability to build these assets ground up (in-house model) including need for investment, resources and timeline of doing so
The results of commercial and asset due diligence enabled the client to clearly determine the coverage provided by the target in its market share goals and further investment needed to meet the gap. The client was thus able to effectively negotiate the valuation of the target in order to maximize the returns on its investment and prioritize the rationale for further investment in the APAC region.