Inspired by CNOOC‘s recent $15.1 billion bid on Nexen Inc., a growing number of foreign firms (particularly those in Asia) are becoming interested in doing energy deals in North America.
Without going into the technical details, here are some of the tips that the foreign firms should consider when structuring deals with U.S. energy firms:
- Due Diligence. A foreign firm should pay attention to due diligence, when it attempts to identify and evaluate opportunities. In North America’s vast energy markets, there are literally thousands of targets, ranging from the small coal reserve companies with asset value of multi-million dollars, to the large oil and gas companies with EBITA of hundreds of millions or even billions of dollars. Deals may take the form of an acquisition, joint venture, partnership, distribution or import/export arrangement. When performing due diligence, a foreign firm should look at not only the target company’s finances, management, and business model, but also larger factors such as the available infrastructure (e.g., transportation),political climate, and regulations that affect the target company. Once a target company is identified, the foreign firm, through its engaged representatives (usually, a law firm or investment banking firm with significant experience in similar deals), can approach the target, investigate its business and help a foreign firm decide if the target presents a good business opportunity with acceptable risk.
- Team Work. Once a target company is identified, the foreign firm should team up with a group of professionals who would help negotiate and execute the proposed deal with the target company. The professionals may include (i) attorneys who would take the lead in negotiating the deal, (ii) accountants who would work on financials, (iii) bankers who would help finance the deal, and (iv) industry experts who help evaluate business opportunities and risks faced by the target. Typically, attorneys take a lead role in coordinating with other professionals, maintaining close communication with the foreign firm. Dependent on the complexity and size of a deal, it may take anywhere between 6 months to 2 years to negotiate and complete a deal involving a foreign firm.
- Political Consideration. In North America, the energy sector can be a politically sensitive area for deals that involve foreign acquirers. For the large deals, the completion of the deals usually requires the approval of government agencies. Therefore, from the very beginning of the deal, it is recommended that the foreign firm hire a competent law firm or government relations advisory firm to implement a strategy throughout the due diligence, negotiation and execution of the deal to delicately handle the potential political sensitivities.