10 key trends in transition M&A
No business is an island: low-carbon investment requires a full value chain
Sellers unable to credibly explain how key business inputs can reliably support the target business may struggle in transactions.
Development is sporadic and lumpy and can easily lead to mismatches or bottlenecks which hamper the ability of a business to develop.
Philip Morgan
Freshfields Partner and head of the firm’s energy and natural resources practice in Asia
A key constraint of greenfield investment (and therefore M&A) is that with the deployment of new technologies, supply chains and value chains are not yet fully in place to service the entire requirements of any particular part of the global energy transition, says Philip Morgan, Freshfields Partner and head of the firm’s energy and natural resources practice in Asia. 'Development is sporadic and lumpy and can easily lead to mismatches or bottlenecks which hamper the ability of a business to develop.'
For example, there are significant increases in energy price volatility due to the variability of the climatic conditions which renewable energy depends on.
This drives a need for additional investment in battery storage and grid/interconnector capacity, without which a development pipeline for renewables may well be significantly delayed.
Freshfields Partner James Chapman points to hydrogen, where a lack of credible offtake demand is preventing investment in generation facilities. 'Similarly, offshore wind – where M&A has been particularly active over the last decade – is suffering from significant supply chain issues in core components.'
Low-carbon businesses tend to be dependent on a range of other parts of the energy transition value chain, James concludes. 'As such, a seller’s inability to paint a credible picture of how key business inputs affecting the M&A target can reliably support the target business will increasingly lead to difficulties in executing transactions.'
Transformational M&A 10 key trends
- 01. Increased vertical and horizontal integration
- 02. Bundling small projects from SME developers into portfolios to create scale
- 03. Traditional players moving outside of their comfort zones
- 04. New technology providers and specialist operators entering projects earlier
- 05. Geography is critical for many low-carbon technologies
- 06. No business is an island: low-carbon investment requires a full value chain
- 07. Setting up businesses/projects to facilitate M&A and realise synergies in future is critical
- 08. Sources of capital driving M&A activity (and their constraints) are changing
- 09. Private capital trends are affecting energy transition M&A
- 10. Antitrust and FDI controls are influencing energy transition M&A
- Outlook for transition M&A
Key contacts
James Chapman Partner
London
Philip Morgan Partner
Singapore
Samira Afrasiabi Partner
London
Alon Gordon Partner
London
Richard Thexton Partner
London
Graham Watson Partner
London
Bukunola Alakija Counsel
London
Laurent Bougard Counsel
Hong Kong
Sarah Jensen Counsel
London
