Deal volumes and average deal values in the energy, utilities and resources (EU&R) sector fell throughout 2022. Despite this, we believe energy transition will remain a key priority for investors and management teams in 2023 and into the foreseeable future—and we expect those groups to continue to allocate large volumes of capital to mergers and acquisitions (M&A) and other capital project development activity in EU&R. We also see an increasing focus on supply security, especially for energy, renewables and critical minerals, as a significant M&A driver for management teams in both the EU&R sector and industrials businesses.
There is no question that traditional sources of debt capital today are more expensive and harder to obtain. However, high commodity prices have strengthened the balance sheets of many EU&R businesses. We have also seen the emergence of alternative debt providers, such as credit funds. These two factors have reduced dependence on traditional bank debt as a means of financing M&A, meaning management can, and will, continue to pursue acquisitions.
Over the past year, we have seen multiple examples of transactions that involved businesses converging into different sectors or subsectors. Examples include chemical businesses buying into renewables projects, oil and gas companies buying electricity retailers, and automotive OEMs buying into or directly securing product offtake from the miners of critical minerals. We expect that this convergence trend will continue to accelerate and broaden, bringing with it new investors to, and added complexity in, the EU&R M&A market, particularly when framed in the context of supply chain resilience.
“Convergence across and into the EU&R sector is accelerating and broadening as companies continue to shape—and reshape—their asset portfolios to align with their strategic energy transition opportunities and ambitions.”
We expect the following areas to be M&A activity hot spots during the next six to 12 months:
We are seeing international oil companies (IOCs) focus on biofuels through the acquisition of renewable natural gas plays. Expect more activity in broader biofuels as IOCs seek to scale up and develop global businesses in this area.
Majors will continue to look for strategic partnerships, and we expect industrial players to increasingly pursue direct ownership or direct offtake arrangements with critical minerals producers and developers.
IOCs will continue to rebalance their upstream portfolios to meet carbon reduction targets, and national oil companies (NOCs) are set to benefit from the divestment of those assets.
Investment across the e-mobility value chain will continue to surge as energy providers and utilities look to extract value in everything from battery components to charge point operators.
Driven by energy and infrastructure price increases, security concerns and the availability of technology and digital sharing energy platforms, we expect strong levels of investment in these areas to continue.
The IRA is a game changer for energy transition investment in the United States. We expect it to drive a shift in focus to and an acceleration of investment in the country and away from other territories, although a continued strong US dollar may make foreign investment into the US more challenging.
M&A volumes and values in EU&R decreased between 2021 and 2022 by 17% and 37%, respectively. The decline was consistent with the broader M&A market, which came off a record year of dealmaking in 2021. That quickly changed as macroeconomic and geopolitical headwinds grew and the war in Ukraine triggered an energy crisis, creating greater uncertainty among dealmakers. In spite of the challenging environment, M&A activity in 2022 reset to pre-pandemic levels in the chemicals, oil and gas, power and utilities sectors. Mining and metals M&A activity remained below pre-pandemic levels mainly due to lower deal volumes in Asia Pacific and EMEA. The decline in deal values was greater than the decline in activity, partly due to a decline in megadeals—transactions with a value in excess of US$5bn—which more than halved, from 19 in 2021 to nine in 2022.
Security of materials supply is paramount to successfully protecting or creating value in this era of geopolitical instability and energy transition. Business leaders who undertake near-term portfolio optimisation actions, such as transacting to add upstream materials suppliers to their asset portfolios, thereby securing volumes, improving certainty on price and gaining direct oversight of the ESG provenance of their products, will be well placed to achieve long-term sustained outcomes for their businesses and their stakeholders.
About the data
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 31 December 2022 and as accessed on 2 January 2023. This has been supplemented by additional information from Dealogic and our independent research, and it includes data derived from data provided under license by Dealogic. Dealogic retains and reserves all rights in such licensed data. Certain adjustments have been made to the source information to align with PwC’s industry mapping.
Partner, Energy, Utilities and Resources UK Leader of Industry, PwC United Kingdom