Strategic preparation for major asset acquisition: a case study of a West African oil & gas conglomerate
Situation:
A West African oil & gas conglomerate wanted to prepare itself for a significant asset acquisition, which would require funding in excess of $1 billion in debt and equity. The company did not have internal corporate finance and corporate development functions, so management decided to bring us on board as an embedded fractional executive to oversee all aspects of the preparation of bid materials including the documentation required for securing bank debt.
Approach:
We followed a holistic approach and completed several phases of work to create an attractive investment proposition for investors and lenders:
- Current state assessment
We conducted a thorough review of the company’s strategic objectives, its position in the market, its historical financials and the state of its balance sheet. Our aim was to identify any financial or technical weaknesses in the company structure that would be detrimental to its prospects for success in the bid round.
At the end of the process, we had a very clear picture of the strengths and weaknesses of the group and we were able to present management with a detailed current state assessment, highlighting areas that needed management attention.
We focused on ensuring that we could demonstrate to the seller and the regulator that the company had the financial and technical wherewithal to be a credible bidder for the prized asset on sale.
- Assembling an execution team
One of the critical outputs of the first phase of our work was the identification of all the human and technical resources we would need to mount the bid. We then assembled a team comprised of internal resources, external legal and technical consultants and potential strategic bid partners.
- Balance sheet restructuring
The company already had a significant debt burden on its balance sheet. In order to increase the bankability of our bid, we pursued a two-pronged strategy. Firstly, we focused on utilizing a project finance structure, which would allow the company to borrow based on the projected performance of the target asset, rather than the company’s own balance sheet. We also focused on restructuring certain company debts to unlock future cash flow for working capital investments that would be required in case of a successful bid.
- Banking support
We worked with technical consultants to analyse the financial potential of the asset and develop a specific plan for investment in increased hydrocarbon production. We presented proposals to various banks and potential strategic partners.
Results:
Engaging the PMO as a fractional M&A executive right at the start of the process yielded significant benefits:
- As a result of the work we did, the company made some significant strategic decisions and re-organised certain joint investments it held with a strategic partner and entered into an agreement to bid in a consortium.
- The company secured banking support from a multilateral institution that committed to raising the required c.$700 million of bank debt for the transaction.
Conclusion
By engaging Catalyst PMO, the company effectively navigated a complex financial situation and accomplished its objectives without the need to assemble a specialized team of finance experts for the project. This streamlined approach not only saved time and resources but also allowed for a more focused and efficient resolution of financial challenges.