The European energy industry is eager to consolidate and sell assets, a survey by international law firm CMS.
According to the survey, three-quarters of energy companies in Europe were considering an acquisition or a divestment this year. Some 45 percent, however, believe that the pandemic would be a significant obstacle to merger and acquisition activity this year, the authors of the report noted. Still, there is cautious optimism that the situation is dynamic and this obstacle could quickly disappear given the right conditions.
“The green transition will drive an acceleration of investment in renewables, energy efficiency and clean energy solutions, as more and more stakeholders pivot away from carbon-intensive assets,” said Munir Hassan, head of the CMS Energy & Climate Group. “But for nimble investors, with shorter return horizons, there are lots of valuable investment opportunities in traditional fossil fuels in the medium term.”
Among the other findings of the CMS survey was a simultaneous expansion and fragmentation of the energy space as a result of the energy transition with the focus shifting from being exclusively on power generation to include other technologies such as hydropower and grid-scale batteries, as well as hydrogen and the electrification of transport.
In this environment of growing transition momentum, oil and gas producers have little choice but to diversify into low-carbon energy and divest from some traditional assets, becoming drivers of the increased M&A activity in the energy space, as suggested by the report.
“For the oil and gas majors, this [the transition] means acquiring or significantly enhancing their capabilities in renewables, including wind, solar and hydrogen, while simultaneously divesting selected carbon-intensive assets in response to mounting ESG pressures. This may be one of the reasons why 50% of respondents in our study point to distress-driven deals as a top sell-side driver,” the report’s authors said.