Energy Sector to Lead M&A Revival in 2014

Regulation will present both challenges and opportunities for the sector, according to research from Hogan Lovells

The energy sector will play a leading role in the global M&A revival, with energy firms significantly more favourable toward M&A than companies in other sectors, according to wide ranging research by international law firm, Hogan Lovells. 

The research – which examines the views of 40 senior executives across oil and gas, traditional power and renewable energy companies, as part of a broader survey of business executives across six sectors – reveals that:

  1. Energy sector executives are more positive about the potential of M&A than their peers in any other sector, with almost nine in 10 executives (85%) considering M&A to have delivered what they had hoped for in the past (against three in four executives across other sectors). 
  2. M&A activity will be funded by existing cash resources, with 73% of company executives suggesting they would use cash on balance sheets to fund M&A growth within the next 24 months. 175 energy companies globally are estimated to have held $850bn in 2013 (a 13% increase on 2012)
  3. Almost three in four executives (68%) see the changing regulatory landscape as a key driver of growth for their business   

The same as before… but different
The findings also reveal that the shape of this renaissance will be more ‘strategic’ than in the past.   62% of respondents state they would seek joint ventures to fund new technology projects, and to tackle capital intensive developments (such as fracking), reflecting how company boards are seeking more long term partnerships. 

Steven Bryan, corporate energy partner at Hogan Lovells, said: “Our research shows that the energy sector will be a driver for the global M&A recovery, with the optimism of executives in the energy sector at a high level.  Company executives are not only positive about M&A and its past success, but have real confidence about the outlook for the future and the role that M&A can play in driving future growth.”

Matthew Williams, Global Co-Head of Hogan Lovells' Energy Industry Group, said: “A distinguishing feature of the energy sector is the direct influence governmental policy and its implementation through regulation has in driving commercial activity. Whether that activity is as a result of un-bundling or as a result of varying levels of subsidy for low carbon energy, both of which we are currently seeing at work in many European jurisdictions, the market reaction can be as immediate as it is material.” 

Additional highlights of the research included:

  • Respondents in the energy sector plan to devote more investment to product diversification than those from any of the other sectors. New technology is also a priority for making businesses successful
  • Future growth is expected to come through investing in new geographic markets or in the developing economies and by making acquisitions in existing developed markets
  • Over the next five years, respondents expect to see growth in their business from South America, closely followed by Africa, then Europe and North America

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