New Energy & Environment: Navigating M&A challenges and opportunities

The demand for secure, clean and cost-effective energy coupled with wider climate-related drivers of the energy transition continue to provide positive long term growth drivers for M&A. Despite this backdrop however, UK energy-related M&A activity reduced significantly in 2024 compared to 2023, both in numbers and in value of deals (based on disclosed data). Global M&A was also down on the prior year but to a much less marked extent. 

The UK is likely to have been impacted by several factors, including: 

• Higher borrowing costs 
• Continued tightening of grid access constraints, increasing risk around long dated development projects 
• Uncertainty around the impact of a change of UK government 
• The inability of the UK listed infrastructure funds (a significant owner of UK renewables generation assets) to raise money for new acquisitions due to their share prices being at a discount to their net asset values, a problem that has plagued the listed funds market for the best part of two years.

In the UK, renewables generation infrastructure is now relatively well-established and over recent years this has encouraged the blossoming of service industries which support and maintain that infrastructure. This has broadened the M&A market in the renewables sector beyond traditional infrastructure investors. PE investors historically uninterested in the lower returns offered by infrastructure assets are also being attracted to what are seen as higher growth and higher return service industries and this trend is likely to continue into 2025. 

For example, we saw Venterra continue its expansion into the offshore wind services market through the acquisition of Oceanscan, provider of test and measurement equipment and human resources into the offshore wind services market. We provided financial and tax due diligence on this and many of Venterra’s previous transactions. We also saw transaction activity in the home energy installations subsector and advised several waste collection-related deals. 

Key to the reversing the trend in 2025 will be unlocking the paralysis of the listed investment trusts, lower borrowing costs, grid infrastructure investment and clarity over government energy strategy and in particular the role and impact of GB Energy as that moves from policy theory to transactional practice.