A new report by law firm Baker McKenzie shows that merger and acquisition (M&A) activity in the energy sector has decreased by 20% last year and is expected to drop further in 2019 before rising in 2020.
The Global Transactions Forecast 2019, in association with Oxford Economics, says that M&A deals in the energy industry have declined in value to USD 255 billion (EUR 228bn) in 2018 from a peak of USD 306 billion in 2017. The report blames this on regulations and sanctions. The initial public offering (IPO) value in energy also went down, to USD 8 billion from USD 10 billion.
Baker McKenzie projects that energy M&A will further plunge to USD 171 billion this year before beginning to rise again in 2020 and stabilising in 2021.
Still, it is likely that there will be increases in M&A and IPO activity in the renewables sub sector.
“As the world’s energy mix transitions to electricity, electric vehicles and batteries proliferate, and sustainability becomes a more critical focus, we expect to see more energy companies investing in the renewable space to generate new lines of business or to build organic growth in renewables,” said Jose Moran, chair of Baker McKenzie’s Global Energy, Mining & Infrastructure Group. Paul Curnow, partner and head of renewable energy and clean technology practice for Asia Pacific, added that companies, especially large multinationals, will become drivers for new investments in renewables.
“Globally, we are expecting to see only a slight drop in Energy-related IPOs in 2019, before increasing again in 2020 – but this remains counter to the overall strong sentiment for IPOs expected this year,” said Adam Farlow, partner and head of capital markets for Europe, Middle East & Africa. He mentioned that for renewables there will be a strong IPO market, particularly in EMEA.
In Latin America alone, M&A activity in energy is expected to rise to USD 94 billion in 2019 and USD 98 billion in 2020. Developing economies such as those in Asia are seen to experience high levels of activity in the five years ahead due to increasing energy demand.
(USD 1.0 = EUR 0.894)
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