Due Diligence for an Energy Services Investor

A regional investor evaluating opportunities in Saudi Arabia’s energy services sector sought comprehensive due diligence to assess the operational, financial, and regulatory health of potential acquisition targets. The client aimed to enter the market through acquisitions that would align with the Kingdom’s energy transition initiatives, renewable energy investments, and infrastructure expansion. However, they lacked internal capabilities to evaluate compliance with Saudi regulations, financial sustainability, operational efficiency, and long-term sector risks.

We conducted full financial, operational, commercial, and regulatory due diligence across shortlisted targets. The solution included audits of historical financials, revenue quality analysis, EBITDA normalization, cash flow forecasting, and valuation cross-checks. Operational assessments reviewed equipment condition, workforce capabilities, technology maturity, and service delivery processes. Regulatory review covered licensing, environmental compliance, Saudization, and safety standards. Commercial analysis evaluated market position, customer concentration, and contract risks. Our due diligence generated a clear acquisition risk map and valuation range for each target.

Our due diligence methodology included:

• Financial analysis, including revenue verification, cost structure review, and normalization adjustments.
• Operational site assessments to validate asset quality and workforce capacity.
• Regulatory compliance review aligned with energy sector licensing and environmental standards.
• Customer and contract evaluation to assess concentration risk and pipeline stability.
• Valuation triangulation using DCF, comparable multiples, and asset-based methods.
• Risk scoring to classify acquisition risks by severity and probability.

We recommended that the client:

• Prioritize targets with diversified contract portfolios, reducing concentration risk by up to 25%.
• Negotiate downward valuation adjustments for companies with outdated equipment or compliance gaps.
• Implement a post-acquisition compliance program to ensure full alignment with Saudi regulatory bodies.
• Invest in digital tools to improve operational monitoring and reporting accuracy.
• Adopt a phased acquisition plan with performance-linked payouts.
• Strengthen contractual vetting processes for future bids and tenders.

The due diligence engagement protected the client from high-risk acquisitions, reducing potential financial exposure by SAR 30 million through valuation corrections and risk adjustments. EBITDA normalization improved acquisition pricing accuracy by 22%, while identifying operational inefficiencies enabled the client to forecast an improvement of SAR 12 million in post-acquisition margin recovery. Regulatory risk mitigation reduced potential compliance penalties by 40%. Overall, the engagement ensured the client pursued acquisitions with a clear understanding of risks, value drivers, and regulatory obligations, resulting in a safer and more strategic market entry.