17/07/2024
Uk energy sector m&a
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“M&A in the UK Energy Sector: Trends and Predictions”

Is the UK energy sector close to a big change due to mergers and acquisitions? Or do current economic uncertainties pose a challenge to growth?

The UK’s Energy, Utilities, and Resources sectors are expected to lead in M&A activities in 2024. Despite economic uncertainty, deals are predicted to rise in both value and number. The push to achieve net zero goals is directing huge investments into these sectors.

Yet, projects not supporting the net zero transition might face financial difficulties. On the other hand, financially strong companies could see great opportunities for valuable mergers and acquisitions.

The 27th Annual Global CEO Survey by PwC shows EU&R CEOs worry a lot about climate change risks since the COP28. This concern is likely to drive mergers and acquisitions that aim to change business models and invest in the energy transition.

Deal value and volume in the EU&R sectors are expected to keep rising in 2024. Environmental, social, and governance (ESG) factors are driving these dealings. Despite economic shifts, focus on energy sustainability is expected to drive deals in 2024.

Companies with strong finances are seen as being in a good spot for future M&A deals. Yet, the speed of change needed for energy transition has been slow. This could lead to more transformational deals in 2024. Issues like consolidation and government regulation will play a big role in M&A activity.

UK Energy Sector M&A is still an area full of strategic investment and market consolidation opportunities. Those looking into M&A must understand the complex influences, especially climate change priorities after COP28. Being in line with environmental goals could unlock new growth paths as the sector prepares for a busy deal-making period.

The Current State of M&A Activity in the UK Energy Sector

The UK energy sector saw less M&A activity in 2023, with an 18% drop from 2022. This trend was not unique to the energy sector but was part of a global decrease. Health was the only sector not to see a decline.

In 2023, the Energy, Utilities, and Resources (EU&R) sectors had £18.2bn in M&A activity. This was the highest for any single industry in the PwC’s Global M&A trends report. Yet, the overall deal values were 24% lower than in 2022. There were 159 deals, a decrease of 18% from 193 in the previous year.

2023’s biggest deal was Harbour Energy buying Wintershall Dea’s assets, worth $11.2bn (£9bn). Drew Stevenson from PwC UK said this rush of big deals was for consolidation and better portfolio management.

Steady interest rates and falling inflation are bringing hope for more M&A deals. Companies are looking for big, fast deals to stay ahead and close the upcoming viability gap. Matt Alabaster pointed out that 45% of UK’s needed decarbonisation has to come from new technologies.

Last year, the UK saw 3,628 deals, a 17% reduction from before. These deals were worth £88bn, down from almost £150bn in 2022. The technology sector kept its deal numbers up, thanks to new tech developments. Private equity was a big player, making up 42% of the deals by volume and 55% by value.

Even with the challenges, the UK energy deals report suggests an upturn in acquisitions as conditions get better. Staying strategic, using creative financing, and embracing new technologies will be key in the coming M&A scene.

Key Drivers of M&A in 2024

By 2024, the UK energy sector is set for major M&A actions. Several key factors are driving this trend. At the forefront is the energy transition, aimed at achieving sustainability goals.

In the energy sector, CEOs are highly focused on climate change risks. This concern is double that of other industry leaders. According to PwC’s 27th Annual Global CEO Survey, investing in ESG is a top M&A motivator. The 2024 agenda encourages companies to acquire assets not aligned with net-zero targets.

Additionally, consolidation and government rules play a big part in M&A trends for 2024. Last year, the UK saw £18.2bn in energy sector M&A, despite a drop from 2022. This demonstrates the ongoing large-scale investments. Such activities are crucial for maintaining resilience and spurring growth.

Ensuring supply security and improving portfolios also stay critical for businesses. Even with fewer transactions in 2023, the strategic value of M&A remains clear. This is seen in the EU&R sector’s 159 deals, down 18% from 2022.

The 2024 general elections could stir market changes, pushing faster M&A actions. These shifts, alongside ESG investments, will shape M&A’s future in the energy sector. As the UK faces these changes, the importance of sustainable growth in M&A stands out.

Impact of Climate Change on M&A Decision Making

Climate change is reshaping how businesses make merger and acquisition (M&A) decisions. A 2021 survey of 400 global dealmakers found that Environmental, Social, and Governance (ESG) factors are more important than ever. Climate change stands out as a key factor that could halt deals. With over $1 trillion in ESG funds in 2020, the M&A scene is rapidly changing.

Climate change effects

The COP28 agreement has spurred UK businesses to focus on transitioning to cleaner energy. Companies that score high in ESG perform better and attract the best people. This attracts attention, especially with a 6% increase in ESG activism in 2022. Companies are being pushed to take strong environmental stances by the public.

In the USA, the Inflation Reduction Act has pumped $369 billion into fighting climate change and boosting energy security. This has led to 270 new clean energy projects and $130 billion of investment in just a year. It shows the growing global push for investments that are good for the planet and how it affects M&A activities.

Expanded ESG checks now cover areas like following laws, managing reputation, staying true to green claims, and checking property risks. These steps are vital for businesses looking to align with the UK’s shift to cleaner energy. They aim to fully meet the tough demands of investing in a way that considers the climate.

Major Transactions and Players to Watch

Last year, the UK energy sector saw significant deals. One such deal involved Johnston Carmichael aiding Glacier Energy’s buyout by Averroes Capital. Even though there were fewer deals than before, their impact on energy transition can’t be ignored. Companies like Elemental Energies are making key moves, shaping the sector’s future.

The North Sea Transition Authority’s plan to spend £21bn on decommissioning over ten years opens up growth opportunities. There are just a few buyers, but they’re well-funded and ready for big transactions.

Deals continue to evolve with some sellers now covering part of the decommissioning costs. This makes transactions more appealing. Keep an eye on TotalEnergies’ actions in the West of Shetland, Shell’s in the Southern North Sea, and Harbour Energy taking over Wintershall DEA. These key deals and players will drive significant sector changes.

Role of Private Equity in Shaping the Sector

Private equity (PE) now plays a big part in the energy field. In 2023, 42% of all business deals were PE transactions. They also made up 55% of the deal value. Even with a 40% drop in deals from the previous year, private equity’s impact is still strong. The biggest deals suffered more than smaller ones. Yet, the money put into each deal hit record levels. This shows a new way of investing.

PE firms keep focusing on areas that make good money, showing high EBITDAs at around 12x. Two-thirds of big companies in Europe think there’ll be more carve-outs soon. They’re getting ready for change and planning ahead. In Germany, about 190,000 companies will need new leaders by 2026. This opens many doors for PE money in the energy world.

More debt problems and likely more company failures are making PE investors look for stable investments. They used to avoid the supply chain area. But now, digital advances and big data look good to them. These changes help make supply chains stronger during tough times. There’s also a lot of money waiting to be spent, making PE folks hopeful for 2024 in Europe.

The energy area is getting a lot of this money. Renewables are leading in mergers and acquisitions, pushing the industry towards less carbon use. Big oil and gas companies are putting money into green deals too. This matches a worldwide move to greener ways. Deals in tech and energy, like with software and startups, are growing. Also, tech companies, car makers, and banks are working together more. These collaborations show how wide-ranging PE investments are now.

In short, PE and infrastructure investment firms are crucial in changing the energy sector. They’re not just looking for quick profits. They’re investing with an eye on making money over time and helping the energy shift. This lets them get good financial returns and grow in a changing market.

UK Energy Sector M&A: Market Analysis and Future Predictions

The UK energy sector’s M&A activities show market growth potential for 2024. Deal values and volumes in the EU&R sectors look to rise. This is thanks to a strong focus on energy shift and tech innovation.

Market predictions

Capital inflows have been noticeable, attracting diverse funding sources to M&A, greenfield, and brownfield projects. It opens many opportunities, especially for financially strong companies ready for new deals. Firms are using M&A trend analysis to improve their market standing, staying ahead in a changing environment.

M&A remains central to achieving global energy shift goals. Future trends are shaped by consolidation, government policies, supply security, and portfolio betterment. Although economic factors may slow ESG-driven deals, transformational agreements are expected to rise. They show a deep focus on long-term growth and caring for the environment.

Geopolitical and regulatory issues will influence M&A in the energy sector. Areas like oil and gas may see restructuring, with more minor deals due to price changes and taxes. Utilities will invest more in energy security, lowering carbon outputs, and transition plans. They play a key role in the sector’s future.p>

The UK energy sector offers vast investment chances, crucial for the global energy change. As the economy gets stable, market actions will increase. There’s a growing interest in deals that build resilience and sustainable growth.

Regional Focus: North Sea Decommissioning and Investment

The North Sea is becoming a major spot for decommissioning work, attracting huge investments. An impressive £21bn is predicted to be invested in the next 10 years by the North Sea Transition Authority. This investment aims to support the UK’s net zero transition through offshore decommissioning.

After Covid-19, M&A activities in the oil and gas sector have seen a sharp rise. Corporate buyers make up 60% of the market’s deals currently. In 2022, a record 1,241 energy deals were made, with clean energy transactions outpacing oil and gas ones. This shows a clear move towards cleaner energy, making North Sea investments even more crucial.

UK domestic firms are set to manage 70% of the offshore decommissioning work. This focus not only boosts the economy but also helps traditional oil service companies. They are adapting their technologies for decommissioning and clean energy projects.

Decommissioning projects are on the rise, evident from the Buchan Alpha’s 148 million barrels of oil. The Port of Dundee’s £10M quayside project for decommissioning activities shows the importance of logistics. A partnership between Forth Ports Limited and AF Offshore Decom UK highlights the effort to boost North Sea decommissioning work.

Infrastructure investors are now eyeing North Sea pipelines and processing plants for their stable income potential. Private equity is also keen on decommissioning security arrangements (DSAs) to ensure enough resources after production ends. New business models and deal structures are emerging. They aim at lessening decommissioning costs and risks, speeding up projects. This helps the North Sea shift towards sustainable energy.

The Influence of International Buyers

The UK’s energy sector sees ongoing interest from abroad. In 2023, investors sealed 36 deals worth close to £400 million. This is less than the year before. The drop is due to tough economic conditions, higher interest rates, and inflation.

Decommissioning in the North Sea is a big deal. The North Sea Transition Authority forecasts £21 billion in costs over ten years. Most of this work will go to local firms, making the sector appealing to foreign buyers.

There’s a lot of attention from US and Middle East investors. They’re drawn by their own surplus funds and the appeal of the pound. The upcoming general election could rush some deals. Buyers and sellers want to avoid the uncertainties of policy changes.

Technology drives the energy field forward, making things cheaper and cleaner. It’s sparking more international deals, especially in innovative solutions. Overseas investors chase after UK companies to get a bigger slice of the market and push for sustainable energy.

The US leads in buying UK firms, focusing on tech. The UK’s way of doing deals attracts more American buyers. It’s seen as more favourable than the US model.

Conclusion

The UK energy sector is about to change a lot. This is because of economics, politics, and the environment. Businesses and investors must make smart choices in mergers and acquisitions (M&A). The future looks good for M&A in energy, thanks to sustainability and new technology.

In the next year, areas like biofuels and e-mobility will be key for M&A worldwide. In the UK, things like politics and tax changes are making owners sell faster. Buyers are also getting creative with deals to win big.

With the UK’s economy becoming more stable, especially with inflation and interest rates, M&A looks promising. We’ll see a lot of action in oil, gas, and other sectors. This is because companies want to work smarter, ensure energy security, and reduce carbon emissions. The North Sea is especially important for investment.

The UK’s energy sector is ready for smart mergers, helping companies grow stronger. This matches well with goals for cleaner energy and sustainability. With global interest and good conditions for deals, 2024 will be an exciting year for M&A in energy.

Written by
Scott Dylan
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Scott Dylan

Scott Dylan

Scott Dylan

Scott Dylan is the Co-founder of Inc & Co, a seasoned entrepreneur, investor, and business strategist renowned for his adeptness in turning around struggling companies and driving sustainable growth.

As the Co-Founder of Inc & Co, Scott has been instrumental in the acquisition and revitalization of various businesses across multiple industries, from digital marketing to logistics and retail. With a robust background that includes a mix of creative pursuits and legal studies, Scott brings a unique blend of creativity and strategic rigor to his ventures. Beyond his professional endeavors, he is deeply committed to philanthropy, with a special focus on mental health initiatives and community welfare.

Scott's insights and experiences inform his writings, which aim to inspire and guide other entrepreneurs and business leaders. His blog serves as a platform for sharing his expert strategies, lessons learned, and the latest trends affecting the business world.

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