How M&A in the energy, utilities and resources sector is fuelling the energy transition

2023’s M&A agenda: Supply security, access to capital debt and converging sectors

We see the sector’s growing focus on supply security—particularly in energy, renewables and critical minerals—as a key driver for M&A activity in both EU&R and industrials businesses. And there are signs that barriers to finance for M&A are starting to fall. Although traditional sources of debt capital today are more expensive and harder to obtain, strengthened balance sheets from high commodity prices—plus alternative sources of supply, such as credit funds—will enable management to pursue acquisitions.

Businesses converging into new sectors are inviting new investors, as well as market complexity, to the EU&R table. In the last year, chemical businesses have bought into renewables projects; oil and gas companies have bought electricity retailers; and automotive OEMs (original equipment manufacturers) have secured product offtake from critical minerals miners.

So, what’s at the heart of the action? In the next 12 months, expect to see the most M&A activity globally in biofuels, critical minerals, IOC (integrated oil and gas company) upstream assets, e-mobility investment, behind-the-meter/fence and on-site generation. The US Inflation Reduction Act, which creates incentives for many investments, will likely accelerate activity in the US.

Our new report, Global M&A Trends in Energy, Utilities and Resources: 2023 Outlook, takes a deeper look at all these factors and more, including comparisons to pre-pandemic deal-making.

The outlook for mining and metals. Geopolitical uncertainty and sanctions continue to rock the mining and metals industry, leading miners to reconsider strategic partnerships. We also expect to see metals and mining M&A activity that consolidates domestic players as governments promote the use of local supply chains and reduce mineral imports.

The outlook for oil and gas. We predict that oil and gas businesses will see commodity price volatility, windfall taxes and geopolitical uncertainty as reasons to create small- to midsized bolt-on deals, rather than larger deals that carry more risk. For those with energy-transition strategies, strong cash flow from hydrocarbons will continue to feed low-carbon investments, and oil and gas M&A deals will bring in the necessary capabilities.

The outlook for power and utilities. Utilities businesses are optimising their portfolios, including shedding non-core assets and funnelling more capital towards energy security, decarbonisation and energy-transition areas. As the market moves to an electric future, utilities will continue to focus on several areas: generation and storage, heating decarbonisation, electric vehicle charging, hydrogen infrastructure, technology to maximise existing infrastructure, and relocating renewables.

The outlook for chemicals. Chemicals M&A activity will continue, albeit at a more muted pace thanks to fears of a global economic slowdown. Rising costs, inflation, energy-pricing volatility and disruption to supply are also squeezing profit margins and operations. But we remain optimistic for a new wave of M&A activity in chemicals for the second half of 2023. Portfolio management and supply chain resilience will drive M&A as businesses invest in assets with higher growth, higher margins and lower cyclicality.