Having visited innumerable data rooms and wrestled with financial models so large that the lights go dim when you press F9 , there are certainly a few best practice tips that are worth while flagging.
A good business analyst is essential . They should be skilled in analysis and sufficiently experienced in the technical processes they are modelling to allow them to spot gross errors . They should be acting exclusively for the Buyer.
It would be unwise to rely on any financial model provided by the seller , no matter how elegant it is, how many pivot tables and scenarios it can run simultaneously. Frequently they can be are so complex they are, in practical terms inauditable so you definitely cannot rely on them.
Far better to build your own model. Better still build such model before you go into the data room and use the data room to provide the data to validate your model’s assumptions. If there is a major difference on any item , this should be flagged. If there is any major difference between the results from your model and the model provided this is a good opportunity to have a good examination of the underlying data. You may be very surprised.
In many cases businesses are presented with a transformation plan. Its very important to initially construct a realistic Base Case that will allow you to see the value you are receiving, and what value you will have to add through your own efforts and the sellers plans
The best , most useful modelling is Techno-Economic modelling where cash flows are built up directly from the underlying technical performance combined with costs and revenues . In this case best practice is to make sure that the technical parameters used in the model are the same as is defined by the technical consultants . This is particularly the case when modelling has been done by an intermediate party who is keen to maximise value and may do so via the technical parameters.
Risk is important to any investor and needs to be addressed in the Review. Simple measures are readily available such as the position of the project or business on the cost curve or the proportion of JORC proven and probable reserves in the important early years in the mining schedule . It is in everyone’s interest to make fully informed , insightful mining investment decisions.
Teviot can help you achieve this. Contact us