In investment management of renewables, the aim is often to build a solid and not rarely a diversified portfolio. This requires a constant deal flow of potential transactions. A steady deal flow is the main goal for transaction and investment managers. For them, the deal flow must always be updated with the latest project-related information, allowing them to judge whether a project is of interest and whether to move forward in the deal pipeline.
A deal pipeline gives an overview of screened projects and points out for which projects a due diligence could be carried out after a preliminary assessment has been made. The definition of an investment strategy, as well as constant market research and networking within the relevant industries, are preconditions for ensuring such a steady deal flow.
Efficient pre-evaluation as backbone for a constant deal flow
As mentioned, the pre-evaluation should serve to evaluate relevant projects as quickly as possible and to select the pertinent projects for potentially sending in an indicative offer to enter into an exclusive evaluation phase (due diligence). Transaction and investment managers rely on an efficient financial modeling of projects during pre evaluation in order to enable a constant deal flow.
As example, it is crucial to be able to efficiently enter project related assumptions and get an immediate and nevertheless reliable insight of the potential returns. In case of a diversified investment strategy, it is particularly important to use a standardised financial model usable for all considered projects according to the defined risk profile. The risk profile determines in which countries, technologies and project phases should be invested. Accordingly, the used financial model should be able to take into account all country specifics (such as taxes), all technology related specifics, as well as a flexible timeline permitting to model different project stages and their impact on the returns.
Set up of an internal benchmarking
Once a comparable financial model has been implemented, we recommend you to set up an internal benchmarking system. This serves to compare the various projects to each other as well as to the average of your pipeline and therefore to identify best and worst deals.
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