In good times and in bad, acquisitions and divestitures are key components of any asset allocation strategy. As companies seek to improve their position, a comprehensive appraisal of all assets considered for acquisition or divestiture is critical for establishing commercial potential. The due diligence behind each of these appraisals must, therefore, include the close examination of any available data to gain a clear understanding of the asset’s performance over time. A thorough examination will provide a more realistic projection of the asset’s future upside financial potential and help a prospective buyer more fully understand the potential benefits, liabilities, and constraints associated with the transaction. But what if the information to which you had access was on a different level than current, publicly available data?
This is where the addition of Solomon’s historic database of non-public data across a broad range of assets—on top of the industry-trusted comparative performance data, methodology, and deep industry experience—provides needed assurance and risk mitigation to both buyers and sellers.
A complete examination relying on this level of data reduces risk and increases the probability that a portfolio addition will deliver the anticipated long-term value for the business. Sellers also are able to highlight how their asset might justify a price that appropriately reflects the true value of the asset.
Fair Market Value Analysis
Solomon will leverage asset information and data from its proprietary databases, including rich and historical peer comparative performance data, to provide increased knowledge and confidence in the decision-making process for various energy assets:
- Petroleum refineries
- Petrochemical plants
- Petroleum terminals
- Power generation facilities
- Onshore/offshore production facilities
- Gas processing and LNG plants
- NGL fractionation plants
Comparable Sales Analysis
Solomon will employ its EDC™ factor and other asset-specific equivalency factors to provide a trusted method in which to compare the sale of assets with differing sizes and complexities. EDC factors, invented by Solomon, have proven time and again to be statistically superior to Replacement Value-based comparisons. Solomon will use its updated databases of energy asset sales to ensure accurate data that can be trusted. Without accurate data, the calculation of EDC can result in a ±25% error in asset valuation.
Cash Flow Analysis
Although many consultants can do a reasonable cash flow analysis, Solomon will employ its Equilibrium Pricing Model to create a regionally consistent price forecast by balancing regional supply and demand. We rely on our proprietary databases to define the distribution of uncertain data and can verify assumptions through the use of our various databases.
Solomon will enter data from the asset being considered into our benchmarking database to assess the asset’s performance in key areas. Results will be ranked relative to previous sales, and industry and regional peers consistent with asset valuation. Rankings are created before and after industry altering events [i.e., Low Sulfur Gasoline and Diesel (IMO) and completion of a major facility expansion or modification] to identify profit potential.
Solomon will assess the latest competitive position of the facility/asset versus other operators in the same market. During this assessment, we will review energy (costs and usage), personnel, maintenance, and operating expense (with and without energy costs) data to determine the degree to which the facility can compete with other similar operators. Note that Solomon will not reveal data on other competitors that is confidential to its study participants.
Solomon will apply in-house, sophisticated Linear Programming tools and expertise to reveal untapped potential, the key in asset valuation. We will also consider how to optimize the integration of new assets into existing facilities or networks, which often drives asset valuation.
For most of the world’s energy assets, Solomon already knows more about the facility in question than any other outside expert. After all, 90% of the world’s refining and 85% of the world’s ethylene cracking capacity already participates in Solomon’s Comparative Performance Analysis™ (CPA™) studies. In addition, more than 5,000 oil and gas production operations and more than 90 FPSOs participate.
For the rest, the data can be gathered and entered into the Solomon database or Solomon can provide an independent validation of client-supplied data.
Performance Improvement & Assurance Services
Upside Potential Analysis using the benchmarking data and gap analysis from Solomon’s studies provides prospective buyers with a valuable, independent view into the performance potential for an existing plant or asset. To further reduce the risk of your investment, Solomon can employ its proven Performance Excellence Process (PEP™), which relies on an on-site assessment by Solomon subject matter experts.