Samjong KPMG "Energy Industry M&A Surged in Q3 Last Year... Business Restructuring Accelerates"

[Asia Economy Reporter Jihwan Park] Last year, mergers and acquisitions (M&A) in the energy industry surged explosively, signaling the beginning of a full-scale restructuring of the energy business.

According to the report "Energy Industry through M&A" published by Samjong KPMG on the 18th, the number of energy industry M&A deals in the third quarter of last year was 449, with a transaction value of $148.5 billion, representing a tenfold increase compared to the previous quarter and a threefold increase compared to the same period last year.

As COVID-19 spread, the transaction value of energy industry M&A in the second quarter of last year hit a record low of $14.6 billion. However, in the third quarter, the transaction value rebounded by more than 900% to $148.5 billion compared to the previous quarter, causing a surge in pent-up demand for energy industry M&A.

Samjong KPMG explained, "This is due to the acceleration of existing mega trends in the energy industry caused by COVID-19 and the swift moves by global players to secure future energy markets." Globally, the energy paradigm is gaining momentum with trends toward electrification and digitalization, decarbonization, and decentralization.

The report analyzed recent M&A trends among the five major pillars of the energy market: international oil companies, national oil companies, large utilities, big tech, and financial investors.

Global oil companies have pursued an active acquisition strategy with a total of 132 deals worth $86.4 billion over the past five years. In 2019, the transaction value was $17 billion, but it sharply increased to $29.2 billion in 2020. Chevron acquired natural gas company Noble Energy for $12.7 billion, and Total also focused its business on natural gas and renewable energy by acquiring a 74% stake in Direct Energy for $25.7 billion to expand its renewable energy and power sectors.

National oil companies, government-owned oil and gas firms, have been more passive as acquirers compared to international oil companies in terms of deal count and scale but have been active as sellers. Notably, Brazil's Petrobras sold 19 assets in 2019. By October last year, it had conducted 15 sales worth $1 billion, showing a strategy to reduce massive debt burdens.

Utility companies' M&A activities centered on renewable energy. Since 2016, renewable energy deals have accounted for more than half annually, reaching nearly 89% of deals by October last year. The report interprets this as utilities directly investing in renewable energy projects and companies amid increasing cost burdens to comply with renewable energy supply obligations, such as purchasing supply certificates, driven by global climate change policies.

Big tech companies have expanded investments in the downstream power generation sector of the energy industry due to a sharp increase in electricity consumption for data center maintenance. Leading IT companies participate in the ‘RE100’ campaign, which aims to cover 100% of their electricity use with renewable energy; Google achieved this goal as early as 2017. In 2019, it made the largest-ever renewable energy investment by injecting $2 billion into solar and wind projects across 18 countries.

Financial investors have concentrated their funds on solar and wind energy. Goldman Sachs acquired Westford Solar in 2019, and KKR has focused on solar by acquiring five solar projects in India since last year. Credit Suisse and UBS are investing in wind energy, acquiring the Arkona wind farm in Germany and three wind farms in Texas, respectively. Samjong KPMG analyzed that financial investors focusing on profitability are paying attention to renewable energy because "strengthened ESG management and policy drives in various countries have increased the valuation of renewable energy companies."

Kim Kwang-seok, Vice President and Energy Industry M&A Leader at Samjong KPMG, emphasized, "The energy paradigm is changing faster due to COVID-19," adding, "This is resulting in proactive M&A by industry leaders." He further noted, "Among energy sources, renewables and gas, and within the value chain, upstream and downstream sectors are emerging as M&A targets."

This content was produced with the assistance of AI translation services.