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Due Diligence -- Pay a Little, Save a Lot

Due Diligence -- Pay a Little, Save a Lot

 

Acquiring a Petrochemical Plant, Refinery or Other Major Asset?

It’s always important to have expert advice when you buy anything -- from a new car to a wide screen television.  Normally, there are many sources of information to determine which products provide the best value, reliability and that will last.   However what do you do if you are investing in a petrochemical plant or refinery or other major industrial plant? Certainly, there are no publications rating the integrity of the plant or forecasting operations subsequent to acquisition. 

This is where Becht Due Diligence can be an important tool to assess future performance of an asset.   Becht Due Diligence is a structured process where an expert team using a flexible protocol provides a detailed evaluation of an asset.   Becht Engineering personnel have extensive experience in conducting due diligence assessments -- our people have led or comprised teams for over 20 Due Diligence assessments of refineries and chemical plants. 

The most effective approach is to have complete access to the facility for a one or two week on-site visit.  During this time members of the plant leadership team and key individuals including supervisors, engineers, operations and maintenance personnel are interviewed using a standard protocol.  If these questions raise concerns, a deep dive into the issues is done including review of plant records and past performance.  Budgets, operating procedures, PSM programs, inspection records, reliability performance and measurement systems, capital programs and incidents are some of the records reviewed in a due diligence effort.  Another important aspect of the due diligence effort is a complete and thorough “walk down” of each process unit, offsite area, tank farm, dock, warehouse and maintenance areas. 

Optimally, a team (including experts in operations, maintenance, reliability, machinery, fixed equipment, instrumentation, control systems, electrical, materials and other appropriate engineering disciplines) is assembled for the effort.  In some cases Becht Engineering personnel have led teams in both domestic and international locations including legal, environmental, business, finance and other key functions to fully evaluate the economics as well as the operation and mechanical integrity of the facilities.  During the assessment daily meetings are conducted with the plant personnel and client to discuss findings, assure alignment and plant the next set of activities.  A comprehensive close-out meeting is conducted to assure alignment and that findings are totally accurate.  A report is issued to the client covering these findings, gaps based on best practices or regulations as well as recommendations to close identified gaps.  More importantly, an evaluation of expected future performance is included. 

This effort supplies valuable input  (cost may range from ~ $20,000 to ~$150,000 inclusive of expenses and reporting) to the decision to move forward or pass on an acquisition.  While a two-week multi-disciplinary effort is desirable, Becht Engineering personnel have performed one-day assessments of facilities to supply the prospective buyer business team leader critical input on the condition of the asset.  We have also evaluated only the plant “data room” information.  This method is not nearly as effective as a comprehensive in-plant assessment including multiple interviews – however, at times discretion of the potential sale dictates this type of effort.  Since Becht personnel have extensive experience in due diligence, they are able to work in any environment and provide critical input on the potential acquisition. 

Some Examples…

thumbs-upCase History 1

A major US refinery was scheduled to shut down resulting in the potential loss of significant finished product output and approximately 1000 jobs.  Becht Engineering was engaged by the prospective buyer to execute a due diligence study covering maintenance, reliability, machinery, electrical, control systems and instrumentation.  We worked with other companies who had environmental and financial aspects of the project.  At the end of the day the deal was closed and the refinery continues to operate.  This low cost effort produced a gap analysis and pathway for improvement for the new owner. 

thumbs-downCase History 2

Becht Engineering led the mechanical integrity due diligence effort at a highly hazardous chemical facility.  The plant, if purchased, would have represented over 90% of the company’s off-site risk.  The plant was in poor condition; had a poor reliability culture; had experienced a recent fatality due to chemical exposure; and had limited inspection and reliability data.  The team strongly recommended against the purchase.  However at the highest levels in the company a decision to purchase was made.  The cost to buy the plant was over $500MM and another $150MM was invested in plant improvements.  In addition the parent company had to deploy about 15 people to the plant to change the culture.  Unfortunately the business climate turned poor and despite the risk, the value of the product declined resulting in significant losses.  Bottom line, not listening to the team cost the company about $1 billion.

thumbs-upCase History 3

A single Becht expert performed a due diligence effort on a small chemical processing business.  Again the plant was in poor shape, had experienced two recent fatalities and would have needed over $100MM in environmental and mechanical improvements.  Becht advised against the nominal $250MM acquisition and this recommendation was accepted.  The representative of the potential buyer asked the Becht expert, “How long before I can sleep at night if we buy the plant?” At least 3 years was the Becht response.  The client thanked us and pulled out of the deal.  At that point the client facilitated a meeting with the plant owner allowing us to give the owner frank, professional feedback on our findings. 

thumbs-upCase History 4

Becht Engineering led a multinational team including engineering, operations, finance, legal, business and other disciplines for a six-week comprehensive evaluation of a chemical business in Europe.  At the conclusion of the effort, a successful deal was executed resulting in acquisition of the business.    

Becht Engineering Due Diligence

Becht Engineering can help you evaluate assets you may be considering for acquisition.  Contact our experts to discuss how we might support your effort. 

 

   Click to Request Info from Rick Hoffman

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Friday, 15 February 2019

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