Until recently, ESG-led M&A, for example deals to dispose of carbon-intensive assets, was largely a reaction to regulatory and shareholder pressure. Now that business leaders across the EU&R sectors are tackling the challenge of ESG transition more proactively and managing ESG risks as part of their overall strategy, ESG-related mergers and acquisitions activity is maturing ‒ and is increasingly viewed as an opportunity to unlock value. Against this backdrop we are likely to see ongoing portfolio optimisation, consolidation, strategic partnerships and capability plays as companies remodel their asset portfolios and seize opportunities in high growth markets such as energy transition, carbon abatement and decarbonisation.
There are, however, also factors outside ESG at play in dealmaking. Robust commodity prices, ample capital availability and supply chain concerns are going to impact M&A activity across the industry. There is likely to be a continued wave of consolidation throughout the global gold sector and in upstream oil and gas in the US. We also expect chemical companies to use targeted M&A in an attempt to secure raw materials closer to their production facilities. Power and utilities, midstream oil and gas assets and renewables look set to continue to attract large volumes of capital from infrastructure funds.
Energy, utilities and resources deal volumes and values
Energy, utilities and resources deal volumes and values, 2019-2021
Energy, utilities and resources average deal values
Energy, utilities and resources average deal values, 2019-2021
Europe, the Middle East and Africa (EMEA) have seen deal volumes recover, with 23% growth over the prior year driven mainly by an increase in transactions in chemicals (UK and Italy) and power and utilities (UK, Spain and Germany). Deal values in EMEA grew by 81% versus the previous year, boosted by megadeals involving upstream oil and gas and power distribution assets.
What about M&A in the Swiss energy, utility and resources sector?
Zooming in on Switzerland, we have been observing strong ESG-led M&A activity, particularly fuelled by the overarching decarbonisation trend. As an example, Swiss utility company BKW has been one of the most active Swiss M&A buyers altogether, complementing its hydropower and distribution grid portfolio with a broad services business consisting of building solutions, infrastructure services and engineering services. Furthermore, Swiss utility Axpo has made a bold strategic move into solar PV by acquiring French project developer Urbasolar, has established a successful renewable energy PPA business across Europe, and has strengthened its footprint in green hydrogen by investing in Swiss Green Gas International. Furthermore, institutional and private infrastructure investors managers like IST3 Infrastruktur Global, UBS CEIS-2 and Reichmuth & Co have been very active buyers, mainly investing in renewable energy assets and green district heating.
Against the backdrop of the ongoing ESG transition, we expect Swiss power and utilities companies to pursue their M&A activity, which will be boosted by governmental green initiatives and robust power market prices. Transactions around solar PV, electric mobility and hydrogen, both for fuel cell vehicles and synthetic renewable fuels, will be top M&A trends in the near future.
Looking ahead: make or break for decarbonisation
ESG will continue to drive dealmaking in the global energy, utilities and resources sector as companies and their investors put environmental, social and governance at the heart of their strategies. We are likely to see business leaders in this sector rapidly initiate moves to rebalance their portfolios and pursue value creation opportunities in ESG-related growth areas ‒ areas including renewables, carbon capture, battery storage, hydrogen, transmission infrastructure and other clean technologies. There will also be a continuation of more traditional forms of M&A in the industry, such as consolidations, capability-driven acquisitions and divestitures of non-core assets, fuelled by robust commodity prices, plentiful capital availability and concerns over the security of raw material supplies.
“Decarbonisation and other ESG-related objectives will continue to fuel the M&A activity in the energy sector – with some of the most important developments driven by Europe. But with strong competition for rather scarce investment opportunities, I expect buyers and sellers to be more structured, creative and flexible in the way they approach deals.”
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M&A Advisory: Energy
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