Getting your house in order – Top tips for seamless share-sale energy deals

Client M&A activity in the energy sector continues to be high, accelerated in part by the supply of capital, a need for supply chain security and aggressive portfolio consolidation and management. While this activity has been tempered by inflation, geopolitical unrest and upward interest rate fluctuations consolidators, funders and companies now continually seek opportunities for portfolio review, creating conditions that are primed to support client energy deal activity.

We work with many clients looking to take advantage of current market conditions to divest assets within their portfolios. These clients are often raising questions around M&A strategies and actions to take within a changing market with a desire to maximise value, while maintaining cost control and managing budgetary constraints through the transaction process.

With the burden increasingly falling to sellers to do much more in preparing for M&A and at an earlier stage of the process than before, it has never been more important for companies considering the sell-side process to proactively anticipate obstacles and gear their teams in good time before the deal process begins. The evolution of and increased complexity of deal processes, driven in part by the increased demands of buyers and their funders, multiple advisors with client team involvement, and complex commercial negotiations to navigate alongside detailed deal documents means that it has never been so important for sell-side teams to allocate sufficient time to ensure a controlled and budget positive process to closing.

As a high-level overview of some of the key pre-deal actions sell-side teams should consider focusing time and resource on are:

Clarity of deal structure

What are you selling?

Is the Target incorporated and will any pre-closing corporate restructuring be required? Does the Target already hold all the relevant project rights and other rights and assets expected?

If any assets or project rights need to be secured prior to closing of the transaction, be realistic about the timeframe and the issues that might be encountered.

Who will be involved in the sale?

If there are multiple shareholders of the Target, ensure that everyone is on the same page with regards to the deal structure and strategy. If there are funding arrangements in place, consider how these will affect the deal timeline. Early involvement of any funder will be key for a successful deal process.

Consider the tax and financial position

Your tax and financial position is likely to be a key driver for the deal structure and timeline, and you need to be clear about these prior to going out to market.

Prepare for the diligence process

Gather the core documents (depending on the stage of your project):

    • Corporate – articles, statutory registers and any JV/shareholder/investment or similar agreements.
    • Tax/financials – tax returns, details of shareholder loans and liabilities incurred by the Target.
    • Grid – all application, offer and acceptance documents and correspondence, network constraints and SOWs.
    • Planning – planning application or planning permission (and evidence of discharge of conditions).
    • Land – option/lease/easement and/or other necessary property rights (for example wayleaves or licences).
    • Construction – contracts or agreed HOTs as applicable.

Technical paperwork and document collation is a critical defence against potential liabilities and value erosion. With increasing buy-side focus on in-depth due diligence, time invested by sell-side teams here will overcome what can be the most significant challenges of the deal process – maintaining buyer confidence and negotiations around buyer protections in the deal documents.

Organise your documents

Buyers are looking to establish a clear picture of the project rights held by the Target. Providing buyers will a full, complete and organised document suite will streamline the diligence process and support a seller’s position through wider negotiations; for example, documents that are obsolete and agreements that have been superseded, do not have to be included in the deal room.

Choose a deal room platform

Deal rooms are not all created equal. Better deal rooms may be more expensive, however they can lead to considerable cost savings in the long run.

Correct issues that are found

There is no need to wait for the buyer to request corrections through the diligence process. Where there are issues, such as the ones set out below, engage your advisors to the extent the issue has already been identified and a strategy agreed prior to the deal process. It will always be crucial to present to a buyer how issues that have been identified will be addressed either pre or post-closing while being mindful and across the wider deal strategy agreed between the seller and their advisory team.

Common issues we come across, include:

  • Project rights/agreements/etc. have not been novated to the Target or agreements have not been correctly executed or adopted.
  • Obligation on project counterparties’ to enter into a direct agreement and/or provide a collateral warranty to a funder are absent from material agreements.
  • Payment obligations have not been complied with, creating a risk of termination of material agreements.
  • Where a planning permission has been implemented there is no evidence of discharge of the planning conditions.
  • Corporate documents and statutory requirements relating to company documents and share ownership are lacking or absent.
  • Inter-group asset transfers, allocation of asset rights or wider re-organisations have not been implemented correctly, creating additional inter-group liabilities or debt not previously considered.

Assemble your advisory team

Your advisory team will be key to how well the deal progresses. The earlier they can be involved and integrated with your internal deal team, the more time they will have to organise workstreams, address any issues, minimise obstacles and agree strategy.

To create the best possible sell-side position to exploit value and deliver a successful deal, sell-side deal teams need to be integrated and working together, agile, inventive but critically, prepared with a clear strategy. Foot Anstey has considerable experience in energy transactions of the type described above. We collaborate closely with clients to ensure delivery of their ambitions in a way that adapts to a client's transaction team's needs and deal cycle. Our integrated specialist support is led by deep sector expertise, providing a comprehensive service to our clients and their teams.    

If you would like to discuss any of the tips above, or if you would like to discuss other deal structures, please do get in touch.