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In contrast to many other sectors, M&A activity in energy, utilities and resources (EU&R) held up well in 2023, driven by companies’ need to adapt to the energy transition, secure supply chains, and meet their own decarbonisation and transformation targets. Despite ongoing economic uncertainty, we expect the EU&R sectors to continue to perform well in terms of deal value and volume in 2024. For a comprehensive summary of PwC’s latest insights into M&A prospects and developments in EU&R, read on.
There is one overarching theme that is driving dealmaking and the allocation of capital flows in the energy, utilities and natural resources sectors: the energy transition. This megatrend encompasses not only sustainability topics such as renewables and decarbonisation, but also energy security, supply chain security, and access to critical minerals in general – all areas that have come under the scrutiny of investors, regulators, and society.
As the number and diversity of investors grows, we’re seeing a noticeable increase in funds being directed towards M&A ventures, both greenfield and brownfield, aimed at driving the energy transition. At the same time, capital is likely to move out of assets that are not compatible with this transition and will instead go into net-zero oriented opportunities. As a result, some sub-sectors may face financing challenges. However, financially strong companies are likely to be well positioned to take advantage of potential deals and value creation options.
So far, the energy transition has been slower than expected, leading to speculation about whether 2024 will see more transformative deals. Although environmental, social, and governance (ESG) factors have traditionally been a deal motivator, economic challenges have recently shifted priorities. Nevertheless, we expect sustainability and energy transition to remain key deal drivers as stakeholders refocus on these topics in 2024
The energy transition continues to be the primary driver of activity in the energy, utilities and resources sectors. Other powerful trends are:
“Globally, mergers and acquisitions will remain critical for EU&R companies aiming to achieve strategic goals related to the energy transition, as they seek opportunities that could lead to transformation and future growth.”
Marc SchmidliPartner, Deals Leader, PwC SwitzerlandIn recent years, industries, sectors, and sources of capital have been merging activities to adapt to the energy transition, particularly in the increasingly overlapping industrial manufacturing and EU&R sectors, driven by the demand for electric vehicles. The EV value chain ranges from raw material sourcing and battery production to vehicle recycling, with growing interdependencies at each stage. For example, clean energy will drive the mining of minerals and metals for EV batteries.
Companies are strategically repositioning themselves through transactions to leverage this shift. Notable moves include energy companies acquiring lithium properties, such as Exxon Mobil’s plan to drill for lithium in Arkansas, and original equipment manufacturers (OEMs) investing in mining or securing supply agreements for EV production materials. General Motors, Ford, and Tesla have made significant investments and agreements to secure lithium and other essential materials.
This convergence and expansion of the EV value chain has significantly spurred M&A activity in the EU&R sectors – and will continue to do so in 2024. As companies prepare for a future dominated by EVs and the decline of the internal combustion engine, collaborative transformation efforts by different sectors will drive sustainable results and accelerate the energy transition.
While dealmaking in many other sectors declined in 2023, M&A in EU&R remained active, attracting investors due to the sector’s importance for the energy transition, as mentioned above. M&A volumes and values in EU&R rose from 2022 to 2023 by 1% and 26%, respectively. The increase in deal values in 2023 was partly due to an uptick in the number of megadeals (transactions with a value of more than US$5bn), which jumped from six in 2022 to 15 in 2023. The majority of these were in the oil, gas, and mining sectors. Five of the 15 megadeals in 2023 were announced during the fourth quarter and accounted for almost US$150bn in deal value, providing positive dealmaking momentum also into 2024.
“E-mobility is gaining traction in Switzerland with the increasing adoption of electric vehicles and the development of infrastructure. The Swiss market has witnessed several transactions in the e-mobility sector as companies seek to strengthen their presence and capitalise on the growing market opportunities.”
Marc Schmidli Partner, Deals Leader, PwC SwitzerlandA brief look at the different segments of the energy, utilities and resources sectors shows that supply chain security and sustainability requirements are the overarching themes for M&A activity:
With significant access to capital, a continued appetite for investment, a drive to accelerate the path to net zero, and increased government regulation, we anticipate that dealmaking in 2024 will be fruitful in the EU&R sectors. Companies with strong balance sheets will have the most success because economic headwinds will keep some businesses from participating in the short term. For companies or capital pools that have been waiting on the sidelines, the tailwinds for many EU&R sectors are showing signs that 2024 could be the breakout year for transformational deals.
In Switzerland, the energy, utilities and resources sectors reflect similar trends to those seen globally. The landscape is characterised by various smaller transactions, undertaken to either align or transform business models to better suit the market dynamics. Notably, the Swiss EU&R M&A activity is dominated by domestic corporate buyers
Marc Schmidli