Consulting case study: Transaction support

Customer brief

An investment fund engaged ICIS to perform buy-side technical and commercial due diligence on a chemical recycling asset.

Challenge

How to determine an investment case, given that the chemical recycling technology landscape is varied, with many routes under development prior to reaching commercial scale. As a nascent market, there are also many uncertainties related to feedstock sourcing strategy and business models.

Outcome

We began our commercial due diligence by focusing on the Target’s business overview and historical performance, including its customer base, historical revenue and margin profiles. We also analysed the regulatory environment as this is expected to evolve significantly over the next decade. Next, we evaluated the market outlook for the Target’s primary products and feedstock – plastic waste – to assess the robustness of its marketing plan. Additionally, we analysed pricing and margin projections for different revenue streams and the competitiveness of the asset against its main competitors.

Our analysis also included a review of supply and off-take agreements, where we highlighted specific contractual risks and mitigants and assessed the robustness of pricing mechanisms in the agreement. Finally, we reviewed the Business Plan, providing an opinion on the assumed revenue and margin outlook and commenting on perceived risks and upsides.

We initially focused on the technical assumptions underpinning the Business Plan during the technical due diligence, conducting an overview of the manufacturing site. We examined the site ownership history and capacity expansions, identifying the material flow diagram and key interfaces with third parties and providing an overview of storage and logistics.

Subsequently, we delved into the process technology and intellectual property aspects of the transaction, conducting a detailed assessment of the core chemical recycling technology, pre-treatment steps and downstream processing. The operational review assessed the historical performance of the facilities including operating rates, feed and product flexibility, operating costs and quality control as well as an evaluation of the feasibility of the assets to support the financial model in the business plan.

We also reviewed the performance of the asset and past investments, such as maintenance costs and EBIDTA projects, along with the projected performance of the proposed investments to support new revenue streams and process feedstock from new suppliers. Finally, we provided an overview of the EHS compliance metrics on site.

In analysing commercial and technical aspects of the proposed transaction, we reduced interfaces and jointly assessed technical and commercial risks along with value-creation options. Our client was able to shape the next steps of the transaction with strategic advice on the key risks, potential mitigation strategies and value-creation opportunities that it presented.