LONDON (Reuters) - A historic peak in global mergers and acquisitions in the first half of 2018 has seen the energy and power sector retain its lead as the biggest contributor, with the value of deals increasing by 62 percent, Thomson Reuters data showed.
The value of energy and power transactions announced globally rose to $365.7 billion in the first six months of the year from $225.5 billion a year earlier and accounted for almost 16 percent of total M&A value.
Utility companies in mature markets have been undergoing a wave of consolidation, seeking to create scale partly because of the increasing shift to renewable energy sources that is forcing them to change business models.
Among the most high-profile deals, Germany’s top utilities RWE (RWEG.DE) and E.ON (EONGn.DE) agreed to break up RWE’s subsidiary Innogy (IGY.DE) and divide its assets between them in a 5.2 billion euro ($6.06 billion) deal, while China Three Gorges [CYTGP.UL] launched a $10.8 billion bid to take control of EDP (EDP.LS), Portugal’s biggest company.
“Over the past few years there has been a repositioning of the utility sector toward sustainable clean energy...(a move) to something that is much more based on digitalized power forces and a world of electrification, with electric vehicles and smart houses,” said Jeanette Smits van Oyen, head of utilities investment banking EMEA at JPMorgan (JPM.N).
“The consolidation via acquisitions is driven by the inability for some to achieve that organically and the recognition that companies need synergies for this transition to take place,” she said. The momentum was likely to continue as the transition to cleaner energy would take between 10 and 20 years to happen, she added.
As confidence picked up after crude oil prices climbed above $70 a barrel in January for the first time in three years, a wave of consolidation has also been seen in the downstream segment of the oil and gas sector.
Marathon Petroleum Corp (MPC.N) agreed to buy rival Andeavor ANDV.N for more than $23 billion, creating one of the largest global refiners that will benefit from access to booming U.S. shale.
With governments and environmentalists forecasting a peak in oil demand within a generation, oil and gas majors are also fighting to establish themselves as the dominant players in the fast-growing businesses of solar power and electric car charging points.
“The investment in renewable energy by BP (BP.L), Royal Dutch Shell (RDSa.L) and other oil majors over the past ten years is now continuing into the downstream energy market,” said Gavin Watson, head of law firm Dechert’s Intl Oil & Gas Group.
BP said in June it was buying Britain’s top electric vehicle charging firm Chargemaster, joining rival Shell and carmakers, which have also made investments in the electric vehicle (EV) market.
“To achieve that goal (oil and gas companies) need to dispose of non-core assets, and release capital to finance their future energy strategy. That results in a lot more M&A activity,” Watson added.
Reporting by Clara Denina; editing by Emelia Sithole-Matarise