Building an airtight financial model for acquisition: the Powerpal story

Shaping a robust financial model for an acquisition involves several key steps, and in the dynamic world of the energy sector, strategic acquisitions stand as cornerstones of growth and innovation.

The recent acquisition of Powerpal by Amber Electric is a perfect example of this, marking a significant advancement in smart energy solutions. Powerpal is known for its innovative app that assists users in monitoring and reducing energy consumption, and they found an ideal match in Amber Electric, who is a frontrunner in renewable energy retail. Marry this with the strategic financial modelling and advisory prowess of Standard Ledger, and you’ve got a match made in heaven. Let’s see how it was done!

1. Standard Ledger: our role in the process

Before we get stuck into the details, you may be thinking, Powerpal and Amber seem to be a real true match, so why did we need to get involved? Rather than being a third wheel, we were there from the very early stages (which you can read about, here), providing commercial advisory services tailored to their needs with fractional CFO support and guidance. Understanding that Powerpal’s financial health and growth prospects needed to be transparently communicated and well understood we led them to be an enticing acquisition target.

So now, let’s delve deeper into how financial modelling can lead to a win-win for all involved.

2. Financial modelling: the backbone of the acquisition

What is a financial model? Not just a pretty face, these models are vital for assessing the economic outcomes of a business, under various scenarios. For Powerpal, we crafted models that described the company’s value, by projecting future cash flows, revenue growth, and evaluating customer acquisition costs. These models were then vital during negotiations with Amber, offering them a clear depiction of Powerpal’s operations and its scalability within their own network.

Let’s take a look at what we did, and remember don’t worry – we’ve got you covered!

The financial analysis:

Gross margin analysis: emphasising profitability of core activities, aiding Amber in evaluating Powerpal’s operational efficiency against revenue generation
Future cash flows: forecasting future cash flows providing a detailed view of potential cash generation and operational sustainability
Customer acquisition costs (CAC): analysing CAC, providing insights into the efficiency of its marketing efforts and business scalability
Customer distribution list evaluation: evaluating this key asset by analysing the revenue potential from existing customers, and the growth opportunities from leveraging this list to cross-sell Amber’s services
Integration synergies: modelling quantified potential synergies from integrating Powerpal with Amber, like cost savings and enhanced product offerings

3. Valuation and deal structuring: the focus

Knowing not all businesses are the same, when valuing we always consider the specifics that are unique to each case, and businesses can sometimes benefit from a ‘fresh pair of eyes’ for negotiations (hint, hint – that’s us!). With Powerpal we took a deep dive into their current assets, customer base, intellectual property, and the potential strategic alignment within Amber’s ecosystem. Our valuation considered Powerpal’s extensive customer distribution list (which was a crucial asset for Amber), elevating and emphasising the strategic alignment throughout the deal-making phase.

4. Financial modelling for earnouts

Beyond modelling and valuations, modelling for an earnout (a provision sometimes written into financial transactions where the seller receives additional payments based on the future performance of the business sold) has its own considerations. Let’s cover these here, showing what we did for Powerpal:

Setting KPI milestones: guiding the earnout structure by setting realistic KPIs based on historical performance, industry benchmarks and expected synergies
Valuing the earnout: determining the financial value of the earnout using scenario analysis to project various business outcomes under Amber’s ownership
Cash and shares allocation: assessing the valuation of shares based on Amber’s market valuation and anticipated acquisition impacts
Modelling post-acquisition integration: simulating the integration process by forecasting the financial impacts on the combined entity, to determine additional earnout payouts
Risk management: modelling risk assessments ensuring an earnout structure that was equitable and aligned with the strategic goals of both parties

What’s next?

Through meticulous financial modelling, Standard Ledger was able to provide Amber with a detailed, strategic analysis of Powerpal’s business, serving not just as a valuation tool but as a blueprint for optimising resources within Amber’s broader business ecosystem. By articulating the financial and strategic merits of the acquisition, we were able to help Amber to make an informed decision, setting the stage for a merger that promises to redefine the energy management landscape. This case highlights the essential role of sophisticated financial modelling in not only understanding a company’s present status but also in unlocking its future potential through strategic acquisitions, and we’d love to see how we could help your business recognise its potential. So what are you waiting for!

BOOK A CALL with us for a chat, and get your business ready for the next stage of growth.