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M&A opportunities within the Energy Transition

As we become increasingly aware of the need to accelerate the energy transition process and move towards more sustainable practises, many natural resources and energy companies are choosing to turn to acquisition to green their operations and rebalance carbon portfolios.


A high demand from companies to stabilise their portfolios, following the pandemic, resulted in a sluggish period of M&A activity in the energy and natural resources industry in 2021, resulting in the failure to recover to pre pandemic levels. Following this stabilisation period, companies began to sharpen capital discipline which further slower deal making as fewer deals met the increasing hurdle rates.


It seems likely that, in order to make more progress on the journey to a low-carbon future whilst maintaining their current businesses, companies are turning to M&A and are using deals to strengthen ESG assets, green existing operations, reshape business models and invest in start-ups to acquire disruptive technology. In order to achieve the demands of the energy transition, companies are having to reinvent themselves and many large companies have already taken steps to accelerate their participation in the energy transition by pursuing such deals.


Methods by which companies are approaching this change include the use of M&A to accelerate shifts in portfolios as they reposition them towards energy transition. This would typically include both investments in the energy transition as well as divestments of high-carbon assets. Shell have exhibited this by selling acreage in the Permian Basin to ConocoPhillips for $9.5 billion, aiding the acceleration of their portfolio shift driven by the energy transition. M&A is also being used to reshape business models, with companies finding that buying new capabilities for transformed business models is required to fully monetising energy assets. A good example of this is Shell’s license to sell power to industrial customers within the UK electricity sector.


There are numerous ways in which M&A practitioners in energy and natural resources can boost the odds of success in using deals to deliver the energy transition. One key example would be the incorporation of ESG considerations into due diligence, with importance placed on the need for the buyer to understand and be able to assess the relative performance of the target across ESG dimensions. Companies will also need to undertake more frequent asset reviews as part of an activist approach to portfolio management.


Analyst: Aisling Day

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