PURCHASE PRICE ALLOCATION OF A SOLAR ENERGY FACILITY
Appraisal Economics Inc. has conducted a purchase price allocation of a utility-scale solar operator in New Jersey. Electricity is generated and sold to the local power utility under a long-term power purchase agreement. A private equity firm acquired the company that owns and operates the facility, and hired Appraisal Economics to allocate the purchase price among the financial, tangible, and intangible assets of the company, including the real property, machinery and equipment (solar panels, inverters, and mounting hardware), a power purchase agreement, and goodwill.
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Appraisal Economics valued the legal rights to harness the flow of wind on a large tract of high plains acreage in the western United States. So-called “wind rights” permit the holder to generate renewable electricity by converting kinetic energy into electrical energy, which is sold in the wholesale utility market. Wind is one of the fastest growing sources of electricity in the United States, due in part to state mandates regarding the proportion of electricity generated from renewable energy sources such as wind, solar, hydro, geothermal, and biomass, which are cleaner than traditional hydrocarbon-based energy sources. To value the wind rights, we used the income approach, which requires projecting future cash flows, allocating the total cash flows between the tangible real property and the intangible wind rights, and discounting to present value the cash flows that accrue to the owner of the wind rights. The results of our valuation were used by our client for tax purposes.
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PURCHASE PRICE ALLOCATION OF A BUILDING MATERIALS MANUFACTURER
Appraisal Economics Inc. has conducted a purchase price allocation for a manufacturer of highly engineered building products. A private equity firm and a pension fund acquired the building materials manufacturer for total consideration in excess of $1 billion. The company operates several highly automated facilities across North America that produce a variety of synthetic building materials designed to replace wood, metal, and other traditional materials for both commercial and residential use. The company has some of the leading brands of synthetic decking, siding, railing, and pavers. Appraisal Economics allocated the purchase price among the financial, tangible, and intangible assets of the company. The assets included real property in two countries, machinery and equipment, leasehold interests, proprietary technology, trademarks, customer relationships, and goodwill. Once goodwill is placed on the balance sheet due to acquisition, it is tested at least annually for impairment.
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OIL AND GAS JOINT VENTURE
Appraisal Economics has valued equity interests in a joint venture between a petroleum company and a private equity firm. The joint venture owns and operates various interests in oil and gas wells in the Bakken Formation. Located in the Williston Basin, which encompasses North Dakota and Montana in the U.S. and parts of Saskatchewan and Manitoba in Canada, this formation of shale, siltstone, and sandstone has emerged as an important region for U.S. oil and gas production. The joint venture explores, drills, and produces oil and gas from tracts of property operated under non-operating working interests (“NOWIs”) and overriding royalty interests (“ORRIs”). NOWIs do not operate the oil and gas wells, but are responsible for their share of the drilling and production costs. ORRIs are similar to royalty interests in mineral ownership but are limited by the term of the lease. When the lease expires, all rights to the minerals revert to the landowner. ORRIs do not bear the cost of drilling or production. Our client has a portfolio of NOWIs and ORRIs in shale formations such as the Bakken. Appraisal Economics has been engaged for several years to value partnership interests in this joint venture.
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