How One Company Saved $300MM

The Challenge

Find a better way to evaluate acquisitions and divestitures at the Portfolio level.

Recently, an Aucerna client shared with us the story of a very successful acquisition. He did so because he wanted us to know how instrumental our Aucerna Portfolio software was in evaluating the deal, and how it helped his company save $300 million. The identity of this U.S. based E&P company must remain anonymous, but we are free to discuss our client’s experience with our product.

Our client said, “Our approach to acquisitions came down to our looking at the economics of the opportunity on a stand-alone basis. Our one question was, ‘Does it meet our internal hurdle rate?’ This led to mixed results, which were most problematic with large, ‘move the needle’ type acquisitions.”

A New Way Forward

Analysis with Aucerna Portfolio has empowered this client, who is involved in both offshore and resource plays, to make more informed decisions

“We have access to two to five times more information now. We have fundamental insights into two critical areas establishing an amount that should be paid for the merger or acquisition and understanding how the asset would blend with the company.”

“We used the Aucerna Portfolio analysis to show how much an acquisition would change the value of the company. That allowed us to get to a price; ‘How much is it worth to us?’ We were then able to look at the company as a whole, and understand what the acquisition would do to cash flow, and what value there would be in making this investment versus not making this investment.”

About Aucerna Portfolio

Aucerna Portfolio is an analytic platform for evaluating decisions related to energy strategy development, portfolio management, capital allocation, and M&A.

Aucerna Portfolio can help companies optimize their portfolios and gain insights into their performance potential and their strategic alternatives at a corporate or business unit level. This is done in the context of their existing business goals, risks and uncertainties, and company opportunities and objectives.

Aucerna Portfolio brings together data (financial and operational) and the business context (business goals, assumptions, constraints, etc.) to address decisions involving risk or uncertainty.

Aucerna-Portfolio

The Benefits

Using this software, we could see clearly how the investment would impact our financials”
In addition to cash flow and capital allocation, Aucerna Portfolio helped this client understand the debt metrics involved, and whether to make the acquisition with equity, or debt, or using a combination of the two.

“We used Aucerna Portfolio to guide us understanding the possibilities of the asset’s impact on the company - ‘how will it benefit us?’, ‘Can we grow our value per share?’ One of the biggest things we were able to learn was what would happen around oil price sensitivity with the combined company.”
Looking at the company as a whole, the client was able to see what the acquisition would do to the cash flows and how the acquisition would take capital away from other areas.

“You just can’t see these things using an economic analysis of the asset by itself.”

And in the end, the benefits spoke for themselves.

“We saved $300 million on this acquisition. Using our previous method, we were prepared to offer $500 million for this asset. That would have met our internal rate of return. However, the analysis with Perspectives showed us that we should not pay more than $200 million. Paying more for this asset would make it not the right deal for us. It would limit our ability to invest in other opportunities. After much discussion, we decided to bid $200 million, and we won. A few hours of analysis using your software saved us $300 million.”

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Portfolio Optimization and Uncertainty Analysis