Acquiring a business can be a complex, resource-intensive and time-consuming process, yet attaining the right business can generate substantial value. We have highlighted some key issues that should be taken into account when acquiring an energy and mining company. In part two of our three-part series, we consider points six to ten:
Local Knowledge
Are you aware of who owns or operates neighbouring assets? This may provide an indication of the quality (or valuation) of the asset. Local knowledge and insight into a local market can be crucial as part of an acquisition, including if you are aware of any ownership restrictions in the target company’s jurisdiction and extent of any government intervention. Certain jurisdictions have specific ownership restrictions imposed by local governments, depending on the type of assets. Likewise, there may be incentives coming into force which may benefit the acquirer in the future.
Timing
The timing of any potential acquisition is fundamental to its success. If the assets are part of a distressed sale, the acquirer may need to act quickly to avoid the mine, exploration or mining rights being sold to a different acquirer. In another example, an acquirer may be interested in purchasing a particular resource or interest for wider strategic purposes. The acquirer will have to act quickly to ensure a successful bid. Having flexible management capacity and quick access to funding is essential to improve the likelihood of a successful acquisition being completed.
Management and Key Personnel
You need to be clear how hands-on you want to be post the acquisition, and therefore the key personnel you wish to retain or transfer across from the seller. It may be necessary to negotiate the retention of key management and personnel with the seller as part of the acquisition and put in place suitable remuneration packages to retain key personnel.
Business Planning
What is your plan post-acquisition and what is the remaining life of the target’s operations prior to rehabilitation and decommissioning? Have you identified areas for revenue growth/cost savings? Do you know how much has to be spent on asset improvements in the short- and medium-term and have you evaluated the full extent of final decommissioning? By doing this, you are demonstrating your strategy to increase the return on your investment, going forward.
Risk Management Systems
Are there adequate risk management processes and systems in place to identify and manage risks post-acquisition that could present threats to future success? A system should be implemented to help to identify and address these risks, as well as increasing the likelihood of achieving the overall business objectives.
If you think the issues highlighted here, or in part 1, are likely to impact your acquisition or you would like any further information, please contact us to discuss how we can help.
Look out for part 3 where we will be highlighting issues including professional advisors, the tax status of energy and mining owning company, tax status of group after acquisition, withholding tax on interest and exemption from UK tax for foreign branches.