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10 key trends in transition M&A

No business is an island: low-carbon investment requires a full value chain

Sellers unable to credibly explain how key business inputs can reliably support the target business may struggle in transactions.

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Development is sporadic and lumpy and can easily lead to mismatches or bottlenecks which hamper the ability of a business to develop.

Philip Morgan
Freshfields Partner and head of the firm’s energy and natural resources practice in Asia

A key constraint of greenfield investment (and therefore M&A) is that with the deployment of new technologies, supply chains and value chains are not yet fully in place to service the entire requirements of any particular part of the global energy transition, says Philip Morgan, Freshfields Partner and head of the firm’s energy and natural resources practice in Asia. 'Development is sporadic and lumpy and can easily lead to mismatches or bottlenecks which hamper the ability of a business to develop.'

For example, there are significant increases in energy price volatility due to the variability of the climatic conditions which renewable energy depends on.

This drives a need for additional investment in battery storage and grid/interconnector capacity, without which a development pipeline for renewables may well be significantly delayed.

Freshfields Partner James Chapman points to hydrogen, where a lack of credible offtake demand is preventing investment in generation facilities. 'Similarly, offshore wind – where M&A has been particularly active over the last decade – is suffering from significant supply chain issues in core components.'

Low-carbon businesses tend to be dependent on a range of other parts of the energy transition value chain, James concludes. 'As such, a seller’s inability to paint a credible picture of how key business inputs affecting the M&A target can reliably support the target business will increasingly lead to difficulties in executing transactions.'

Transformational M&A 10 key trends

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