Deal activity in the energy, utilities and resources sectors in the first six months of 2022 has been lower than we expected it to be at the beginning of the year, in terms of both the number of deals and the time it is taking to agree to a value and execute a deal.
The current lower velocity is unsurprising, given the uncertainty in deal pricing caused by inflation, interest rates, geopolitical unrest and volatility in commodity prices—all of which have increased since the beginning of the year. However, despite this uncertainty, we expect M&A activity to be robust in the near to medium term due to:
We continue to closely monitor discussions around the ethical stewardship of carbon-intensive assets and its potential impact on M&A activity. For example, although a number of companies have already taken steps to demerge or divest their more carbon-intensive assets from their other operations, growing unease that such actions can lead to higher carbon emissions and for longer has led to adverse investor reaction. Potential sellers of such assets will need to rigorously engage with a wide range of stakeholders and adjust their M&A strategy accordingly to avoid accusations of greenwashing and the risk of derailment of their divestment processes.
Recent global and macroeconomic events have put an even stronger spotlight on energy costs and availability amid the larger energy-transition landscape. Those companies with M&A strategies well-aligned to their corporate vision—particularly in high-growth areas such as renewables, carbon capture, battery storage, transmission infrastructure and other clean technologies—will be best placed to create value and sustained outcomes for stakeholders in the medium to long term.