EFG Hermes is the leading investment bank in the Arab world, with a commitment to investing in renewable energy. Looking to expand its portfolio beyond the borders of the Middle East and Africa, it considered acquiring a large percentage of EDPR France, a subsidiary of EDP Renewables, the world’s fourth largest wind energy producer. After receiving technical due diligence from SGS, it went ahead with a USD 208 million leveraged buyout, acquiring a 49% share.
Assessing the risks
With such a large transaction involved, EFG Hermes had to be sure it was making the right decision before taking the plunge and investing. It needed an assessment of the risks. This would involve reviewing EDPR France’s large portfolio of 33 wind farms with 170 wind turbine generators (WTGs) from several manufacturers. There would have to be a technical investigation of the WTGs as well as an assessment of the regulatory, legal and financial risks of the acquisition.
Global experience, specialist expertise
With its broad market knowledge and a team of experts specializing in the energy sector, SGS was well placed to support EFG Hermes by performing technical due diligence in the brief window of time available before the buyout was to take place. SGS’s ability to remain flexible while adhering to a tight time frame made it ideal for the job, as identified risks might require more thorough investigations and shift the focus of the assessment.
Understanding the technical risks
SGS’s wind energy experts performed a comprehensive study of EDPR France’s wind farms. A wind assessment included a review of historical wind production, secondary losses, such as grid downtime, and commentary on future generation productions. A noise assessment involved a review of noise and environmental studies and an examination of potential production curtailments caused by noise-related issues. SGS even investigated how the wind farms might affect birds and bats.
Site visits were carried out on five low performing wind farms with the aim of providing spot checks of the sites and their surroundings, the infrastructure, outer wind turbines and wind turbine floors. These visits also provided an opportunity to check for safety signs and respect for regulations and to discuss safety procedures with the maintenance teams.
A holistic review inspires confidence
Ensuring that the wind farms were safe, efficient and productive was not enough. EFG Hermes needed assurance that no aspects of the buyout would create a significant risk.
This entailed reviewing key clauses of project contracts, comparing them to industry standards and identifying any uncovered risks or other specific items of concern. Operations and management (O&M) contracts were analyzed for their scope and comprehensiveness, the split of responsibilities between the parties, prices compared to market benchmarks and the suitability of liquidated damages.
A review of O&M history focused on annual operations reports, operational data, including production and availability figures, and commercial data, such as sales revenue and costs.
A successful acquisition
SGS was awarded the job in May 2014 and within four weeks it had combined its findings, observations and conclusions in a Red Flag report, summarizing the major risks associated with the buyout, based on site visits and reviews of project documents. It indicated when risks were acceptable and when they were not.
By suggesting appropriate mitigation measures, adjusting the scope of the job when required, delivering reports on time and remaining available on short notice even after reports were delivered, SGS met the demands of EFG Hermes and satisfied the investment bank that the buyout would be a profitable one. The acquisition took place successfully.