‘We provide our clients with confidence.’
In this Q&A, Oxera economic experts discuss the success stories and key issues our clients face in due diligence.
What are the key issues our clients have with due diligence?
Dr Leonardo Mautino Our clients need help to make informed decisions about their acquisitions. Due diligence provides them with some certainty about these decisions. In the regulatory field, we’re dealing with large-scale infrastructure projects—from energy networks, water companies and airports, to telecoms infrastructure, rail and rolling stock. We perform due diligence on the regulatory regime and inform our clients on how it may affect an acquisition or a sale.
Jostein Kristensen Investors want to identify the value drivers of their target asset. Often under pressure from their investor team, they come to us to tick the boxes but also to get under the skin of the transaction. What are the risks and opportunities related to existing and future regulations? Are there market conditions or political factors that may drive change in the regulatory regime? How might regulation affect the value of the asset?
Dr Michael Kraus We like to scrutinise regulatory regimes and explain their workings. Why? Because investment committees and lender banks rely on us to inform the decisions they make. We identify every regulatory risk or out/underperformance potential, assess the economic impact of legislative changes and appeals, devise scenarios and audit financial models.
Peter Hope Ultimately, we create value by removing or quantifying regulatory uncertainty, ensuring our clients can value the target at the risk-adjusted price.
Who are the main people looking for our help?
LM In regulatory due diligence, our clients are investors (corporate and investment / pension funds) and advisers (both financial and legal). They will represent a fund or investment group wishing to buy an entity or assets, usually related to large-scale infrastructure with potential regulatory issues.
MK We work with the top tiers from the pension and infrastructure funds community. They bring a detailed understanding of finance and the regulatory system and usually know what they need from us—a clear understanding of the regulatory risk of a transaction. We work with two types of investors: those dealing with origination or acquisition of assets and those managing assets post-acquisition.
PH The other key groups we work with are financial and legal advisers in the investment team who use due diligence reports to help inform the value they put on a potential purchase.
So why is an economics firm best suited to this work?
MK As an economics consultancy, we’re not licensed to provide our clients with advice to buy, sell or keep an asset. This gives our analysis a neutrality and rigour that allows us to report without bias or judgement. However, these due diligence reports will directly inform investment decisions.
JK Our clients know we’ve looked at all the angles—we don’t miss an issue, and we ensure that our recommendations are supported by robust analysis and sound economic principles built on our experience.
LM With our extensive sector and jurisdictional knowledge, we make accurate comparisons and offer an informed perspective across regulatory bodies and disciplines. While no one can predict 100% what will happen, we have a good view of the sustainability of the regulatory regime and potential areas of change.
What do our clients gain by working with Oxera?
MK Investors don’t want nasty surprises. They need the confidence that they’re fully briefed to make informed decisions about their transaction.
LM We provide that confidence.
PH Our clients are aware we have over 30 years’ experience in this field. We enjoy a reputation for credibility and integrity with European governments, regulators and utility companies. We have direct relationships with many regulatory bodies, and often know how they will react to events. Our extensive professional network and presence in Brussels help us keep our finger on the pulse of the regulatory landscape as it is evolving.
With high stakes involved, successful bids depend on attention to detail, speed and responsiveness. Through providing board-level advice on regulatory matters, we understand how companies make decisions in the real world and have unparalleled awareness of the value drivers in a regulated utility context.