The challenge

Palisade Impact, which focuses on investments that drive measurable outcomes alongside strong financial returns, engaged Rennie Advisory to conduct commercial, operational, IT and regulatory due diligence on a proposed investment in Energy Locals.

Energy Locals is an innovative Australian energy retailer and embedded networks provider, specialised in selling energy into multi-tenanted residential and commercial buildings.

Palisade sought to ensure its investment would generate stable, infrastructure-like returns consistent with its impact mandate, and to secure a competitive price in a strongly contested transaction.

Our solution

Commercial due diligence

Rennie Advisory conducted a comprehensive and independent assessment of Energy Locals’ growth potential and competitive position in the Australian energy retail and embedded networks markets. Key areas examined included:
Current size and growth of the markets, including current and projected market penetration of embedded networks
Sector tailwinds and headwinds
Competitive landscape, dynamics and evolution
Competitive differentiators for success in the sector and how the Target performs
Factors influencing long-term unit economics

Operational due diligence

Our operational review assessed how Energy Locals’ organisation and systems would need to scale to meet expected growth. This included modelling of the required cost base going forward. Through interviews and process observation, we also identified potential capacity constraints and areas for process enhancement.

IT due diligence

Our IT due diligence reviewed major IT projects and the capability of the IT organisation to deliver future projects required to fuel and support growth. A forecast of IT capex needed was conducted and recommendations on potential initiatives were made.

Regulatory due diligence

The energy sector is subject to evolving regulations, impacting both risks and returns. We addressed several regulatory considerations:

• Potential changes to default market prices and their effect on retailer profitability
• Market outlook for gas retail as part of the energy transition
• Prospective extension of default pricing to embedded networks
• Possible regulatory actions enabling or restricting embedded network operations

Each issue was evaluated for its potential commercial implications, with our findings integrated into the final commercial due diligence reports as well as the financial model.

Ultimately, our independent advice supported Palisade Impact to make its investment decision, with a clear understanding of potential risks, issues and upside opportunities, and was an input into valuation.

Our findings contributed directly to the final valuation modeling, ensuring upside and downside scenarios were adequately considered.

Takeaways

• Build strong, collaborative relationships with management during due diligence, using the process as an opportunity for constructive dialogue and future strategic alignment.
• Evaluate both potential upsides and risks equally; commercial and operational diligence should support strategies for post-acquisition growth, not just risk mitigation.
• Regulatory due diligence is particularly critical in the energy sector, where frequent and significant regulatory changes can materially affect business valuations and investment outcomes.