Pre-investment analysis of a renewable-energy group for an international investor
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$22M
group EBITDA
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~180MW
total installed capacity of the portfolio
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−8%
deal-price adjustment from the DD
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5
parallel analysis streams
Context
Initial state
An international investor was considering acquiring a controlling stake in a Ukrainian renewable-energy group as a platform for further developing a portfolio of generating assets in Ukraine. To make the investment decision, comprehensive due diligence of the target was initiated.
The group comprised 4 legal entities (a management company plus several SPVs), brought together a portfolio of solar and wind power plants with a total installed capacity of ~180 MW across three regions of Ukraine, and had around 130 employees.
Project details
- Industry
- Renewable energy (solar and wind generation)
- Area
- Comprehensive due diligence
- Annual group revenue
- ~$28M
- Group EBITDA
- ~$22M
- Price adjustment
- −8% from the DD
- Deal structure
- Share deal with restructuring and enhanced warranties
The problem
Typical risks of investing in a portfolio of renewable generating assets on a new market
The foreign investor faced a set of interrelated risks typical of acquiring a portfolio of generating assets in Ukraine’s regulated renewable-energy sector. Each could significantly affect the real value of the deal or create hidden liabilities after closing.
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Limited transparency of financial information
Reporting under national accounting standards did not provide enough transparency on the real profitability of individual assets and the structure of feed-in-tariff revenue — the real business economics needed normalization and verification.
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Regulatory and licensing risks
The high level of state regulation of the sector required a separate analysis of electricity-generation licenses, the terms of the "green" (feed-in) tariff and the power-purchase agreements, the history of dealings with regulators, and potential regulatory changes.
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Asset technical risks
The real technical condition of the power plants, actual output against design figures, the condition of the core equipment, and the investment required to maintain and replace it needed an independent assessment.
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Deal-structure risks
The seller's base proposal — a share deal — potentially transferred all of the business's historical risks to the investor with no protective mechanisms.
How the problem was identified
The risks were identified through a comprehensive analysis: 3 years of financial statements, tax history, a legal analysis of the corporate structure, an analysis of key contracts (grid connection, power purchase, the “green” tariff), a technical assessment of the assets, and interviews with key executives and managers. In parallel, we analyzed the transaction structure proposed by the seller and its potential implications for the investor.
The solution
Steps in delivering the due diligence
We organized comprehensive due diligence along five parallel streams, focused primarily on identifying risks for the investor, assessing the real business economics, and testing the resilience of the business model.
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Initial business analysis
We analyzed the group's structure and key lines of activity. We identified the main risk areas for detailed study.
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Financial and tax due diligence
We analyzed 3 years of financial statements, normalized EBITDA, analyzed the structure of feed-in-tariff revenue, income, and costs, assessed the operational efficiency of the portfolio, and assessed tax risks.
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Legal due diligence
We analyzed the corporate structure of the group and the SPVs, verified rights to the assets and land plots, analyzed the licenses and key contracts (grid connection, power purchase), and assessed litigation and potential legal risks.
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Technical and operational due diligence
We assessed the technical condition of the power plants and core equipment, analyzed actual output against design figures and the operational efficiency of the portfolio, and determined the scope of investment required to maintain and replace the assets.
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Analysis of the transaction structure
We assessed the proposed deal structure, developed alternative structuring options, and modeled the tax and legal implications of different deal options for the investor.
Results
Measurable achievements from the due diligence
The investor obtained a comprehensive picture of the business and a full set of tools to protect its interests: an adjusted price, a restructured deal, and contractual mechanisms that minimize the transfer of historical risks.
Key risks identified during the due diligence: the need for additional investment to maintain and replace the assets, potential tax risks, and legal risks in the corporate structure and long-standing litigation.
Before the DD
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Limited transparency of financial information
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Unknown technical condition of the assets
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A base share deal with no protection
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An overstated deal price
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Uncertainty for the investor
After the DD
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Normalized EBITDA and the real business economics
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Assessed asset condition and the scope of investment required to maintain them
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A modified deal structure with seller warranties
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−8% deal-price adjustment based on the risks identified
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A substantiated, protected investment decision
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