Project Finance/ BOT

Service providers considering an acquisition strategy should evaluate the form of acquisition called “BOT” (or “BOOT”). This form of acquisition developed in the framework of project finance, where a new infrastructure project such as an airport, bridge, highway or port would be financed using private capital and eventually transferred to governmental control after initial operations.

BOT
“BOT” means “Build-Operate-Transfer” and “BOOT” means “Build-Own-Operate-Transfer.” Actually, in the context of outsourcing, the concept of BOT might apply, but the traditional provisions of a full-blown BOT or BOOT would be streamlined.

In outsourcing, a “BOT” operation occurs when a service provider or enterprise user enters into an agreement that gives it the right to acquire a new or existing facilities (including trained personnel) at some future date. The agreement defines all relevant conditions and obligations before the transfer of the infrastructure facility to the buyer. The BOT agreement serves as an outsourcing agreement with a call option to acquire the facilities. It could contain a put option as well.
For the seller of the infrastructure facility, a BOT transaction can generate an important new client within minimal risk of loss. However, every BOT transaction is carefully considered and negotiated. For the service provider giving a buyer an option to purchase, the basic allocations of risks and rewards need to be defined in a commercially appropriate manner.
For the buyer, a BOT transaction can provide a test for the suitability of the services and protect one’s investment in the relationship. That investment may be significant, as it includes process analysis, knowledge transfers and licensing and financial and operational reviews.

Risk Mitigation
The risks of a BOT transaction depend on the conditions and pricing of the agreement, as well as traditional risk mitigation techniques such as insurance, escrows and the like.