Hydropower energy Picture: THINKSTOCK
Hydropower energy Picture: THINKSTOCK

London — A historic peak in global mergers and acquisitions (M&A) 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%, Thomson Reuters data showed.

The value of energy and power transactions announced globally rose to $365.7bn in the first six months of the year from $225.5bn a year earlier and accounted for almost 16% of total M&A value. Utility companies in mature markets have been undergoing a wave of consolidation, looking 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 and E.ON agreed to break up RWE’s subsidiary Innogy and divide its assets between them in a €5.2bn deal, while China Three Gorges launched a $10.8bn bid to take control of EDP, Portugal’s biggest company.

"Over the past few years there has been a repositioning of the utility sector towards sustainable clean energy ... [a move] to something that is much more based on digitalised power forces and a world of electrification, with electric vehicles (EVs) and smart houses," said Jeannette Smits van Oyen, head of utilities investment banking Europe, the Middle East and Africa at JPMorgan.

"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, adding that the momentum was likely to continue as the transition to cleaner energy would take between 10 and 20 years to happen.

Consolidation wave

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 agreed to buy rival Andeavor for more than $23bn, creating one of the largest global refiners that will benefit from access to booming US 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 EV charging points.

"The investment in renewable energy by BP, Royal Dutch Shell and other oil majors over the past 10 years is now continuing into the downstream energy market," said Gavin Watson, head of law firm Dechert’s international oil and gas group.

BP said in June it was buying Britain’s top EV charging firm Chargemaster, joining rival Shell and car makers, which have also made investments in the EV market.

Said Watson: "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."