Due diligence avoids costly mistakes ahead of farm-based investments

Risks associated with investing in a farm-based project such as anaerobic digestion (AD) can be controlled if that investment is correctly reviewed and assessed before an investor commits to it.

A new project brings opportunity, but risk too, and without a process known as due diligence those risks can prove costly.

Will Scott, an agricultural business consultant at Brown&Co, defines due diligence as a process of thoroughly reviewing and assessing a project, an asset or a business before a financial and legal commitment is made.

“It is essentially about understanding the risks and opportunities involved and sense-checking what others have provided about a specific investment or project,’’ he
explained during a recent Brown&Co podcast.

It is a service that Brown&Co provides and one that its teams across the UK have extensive experience of.

Much of their work is based on reviewing the financial performance of a project through detailed modelling and assessing its operational viability and compliance.

“This ensures there are no hidden issues that could affect the success of the investment,” said Will.

In recent years, the firm’s main focus has involved AD projects, initially plants established under the Renewable Heat Incentive (RHI), or the Feed in Tariff (FiT) scheme.

More recently, biomethane plants, which also fall under the scheme, have gained traction too and make up a big proportion of Brown&Co’s due diligence work.

“That scheme has got a few years left on it so there is quite a lot of work involved with that,” said Will.

Brown&Co’s role focusses on two areas.

One of these is reviewing the financial viability of the project through investment models, looking mainly at the income streams, operational expenditure and – ultimately - the return on capital.

“This is the big number we look at,” Will pointed out.  

The second area is reporting on feedstock supply, when the investor wants to make sure that there is feedstock within a certain radius of the plant, and that it is available for them to source. 

This might be in the form of energy crops such as maize, wholecrop and rye, or through farm manures.

It is important that this is known because under the Green Gas Support Scheme (GGSS) at least 50% of methane - the bioenergy content – must come from waste or residue feedstock. 

Reporting can look at the overall project or form part of the wider due diligence of the asset, which Brown&Co engages in by working alongside other technical consultants.

“Across the firm we are heavily involved in this type of work, reporting on behalf of both clients and investors, both in the UK and internationally,” said Will.

“We have delivered some big overseas projects and it is an area of work we do specialise in and very much have the capabilities to deliver in a number of areas.”

For further information on how Brown&Co can support with due diligence please contact your local office.