Highlights of Bain & Co report by Mathew Carr

–Acquisitions related to the energy and climate transition as a percentage of all deal volume is steadily growing, from 21% in 2021 to 27% in the first three quarters of 2022

—Energy and natural resources companies are flush with more cash than any other industry ($300 billion), and this will fuel their investments in the energy transition.

–Some giants including Shell are seeking to replicate their current “integrated structure” into the new green era. “Recent EV-related acquisitions in combination show how Shell is following a similar integrated value-chain approach, this time for renewable power generation all the way through delivery to the ultimate end user.

“Shell is using its capabilities for developing oil and gas projects in harsh environments to build offshore wind farms. In November, Shell formed a partnership with Alternergy, a renewable energy company, to develop an initial one gigawatt of generation capacity in the Philippines.”

Unedited press release (emphasis added):

Bain & Company’s 5th annual Global Mergers & Acquisitions Report, published today, reveals that corporate executives looking ahead to 2023 remain confident in M&A’s role in value creation. While global M&A value dropped dramatically in 2022, a loss of 36% in deal value, Bain’s report confirms that deal activity continues to be a central corporate strategy for growth and profitability.

Our report reveals that portfolio rebalancing in the energy and natural resources (ENR) sector will accelerate in 2023 and the coming years, but the key is in turning these acquisitions to profitability and fit with the acquiring company.

For the first nine months of 2022, divestitures activity totaled $250 billion—that’s more than any other industry, as the race to divert away from carbon-heavy assets continue. While these spin-offs are happening, acquisitions related to the energy transition as a percentage of all deal volume is steadily growing, from 21% in 2021 to 27% in the first three quarters of 2022.

This comes at a time when ENR companies are flush with more cash than any other industry ($300 billion), and this will fuel their investments in the energy transition.

The new wave of M&A in ENR —namely, scope deals to enable energy transition—are becoming more competitive and have a different risk/return profile than previous deals, requiring fundamentally different approaches to value creation. It will require a much more tailored approach when it comes to deciding what to preserve, what to integrate, and how to evolve the business strategy to make the most of the core strengths of the acquirer (if possible).

In the Bain M&A Practitioners’ 2023 Outlook Survey, scope deals most often fail because of overestimation of revenue synergies, changing market conditions, and insufficient strategic fit.

But there are ways to win.

For example, Shell is building out its footprint of electric vehicle (EV) charging stations globally through its acquisition of ubitricity and others. Shell acquired Greenlots, which provides a software operating platform for EV charging companies that includes real-time charger health status, utilization data, dynamic pricing capabilities, and predictive analytics. Shell also bought a minority stake in microgrid developer GI Energy. Shell has an integrated oil and gas value chain that extends from production, refineries, pipelines, and ultimately through its retail gas stations. These recent EV-related acquisitions in combination show how Shell is following a similar integrated value chain approach, this time for renewable power generation all the way through delivery to the ultimate end user.

For more information, please refer to pg 73/140 of the report.