How Energy Companies and Virtual Data Rooms go Side By SideAuthor: Liam Cook
There was a time, not too long ago, when energy companies would have been narrowly defined as those producing or exporting oil and its derivatives, such as fuel and bitumen. Only recently has the energy sector opened up and started to welcome new entrants, largely because traditional, big oil companies have realized that an inevitable shift in public perception of energy creation is well into maturity. One only has to look at companies such as Tesla to understand the impact that sustainable energy has had on consumers and will have on companies in the near future. So let us go on about virtual data room usefulness for energy sector.
Realizing that the future of energy lies in companies with large focusses on green energy creation and alternatives to fossil fuels, big energy companies have been on an aggressive spree of mergers and acquisitions to better position themselves for the big transition. This dramatic expansion of the market for renewable energy has brought with it a simultaneous increase in the volume of corporate transactions within the energy sector as a whole.
Beyond the arena of mergers and acquisitions, energy companies also find themselves in an increasingly collaborative market as previous competitors try to weather the economic storms of past years through structured partnerships and joint ventures. Together, these trends have put energy companies in the position where they need to deal with large amounts of company and industry data on a daily basis in order to remain relevant.
Coupled with squeezed margins due to low oil prices and inefficient and depreciating assets, energy companies are increasingly turning to virtual data rooms to manage and streamline their financial workflow from finding prospective sellers or buyers to efficiently conducting due diligence in the M&A timeline. The use of virtual data rooms in strategic alliances has also become widespread as the platform meets the two main needs of efficient data management and secure transmission of company-sensitive information.
Virtual data rooms and energy companies were a match waiting to be made. Most major infrastructure projects in the industry have involved a partnership of some sort, usually in the form of joint ventures for cross-border projects such as new oil exploration or large-scale construction of wind farms. Virtual data rooms provide the centralized platform through which all prospecting and pre-contractual negotiations can take place and allow deals or partnerships to develop in a secure virtual environment.
Further in the transaction process, virtual data rooms play their largest role in facilitation the sharing of sensitive documents such as company contracts, engineering processes and cost analysis. The data room places complete control over the confidential documents in the hands of the owner (company) and allows them to control who sees which document, what viewing and access permissions they have and for how long they can view it. This type of access control allows information to be shared gradually, reducing the risk of corporate espionage and exposure if the deal falls through.
Virtual data rooms further facilitate negotiations with regulatory bodies and governmental institutions, both of which play a large role in determining the viability and financing structure of these projects. Financing alternatives to private equity or structured debt such as the prepaid power purchase agreements (PPA) allow energy companies to secure low-cost and low-risk financing through the prepayment of energy that will be created through the project. Data rooms allow multiple parties to be present at negotiations such as those surrounding a PPA agreement, vastly improving the chances of a successful deal and greatly reducing pricing inefficiencies that could arise through lack of transparent industry information.
M&A, fundraising and business partnerships activities have all benefited from the increased ease of doing business through a virtual data room platform. Benefits such as lower transaction costs and expedited deal timelines allow companies to take on a larger volume of potential deals and look further abroad in their search for partnerships and funds, all while knowing that their company data is being securely stored in off-site data rooms.
The energy sector has realized that the need for change is urgent and the use of virtual data rooms has greatly aided this process and has ensured the industry has remained relevant for now. Their continued use in the renewables market is likely to cement their place in the energy sector for decades and decades to come.