As Hutcheon Mearns surpasses £100m in recent M&A deals over the last three months, we take a closer look at the impact of the energy transition on investors – and some of the key opportunities and challenges in the 2023 M&A market.
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Adam Maitland, the managing director of business advisory for Hutcheon Mearns, specialises in corporate finance and Mergers & Acquisitions (M&A). As his firm is based in Aberdeen, he’s familiar with conversations around the energy transition – and he is a firm believer that oil and gas has plenty of interesting investment opportunities on offer.
Adam explains: “In order for the world to get to net zero by 2050, we need to spend $5.8 trillion a year by some estimates. Global government spending on clean energy transitions was $1.2 trillion as at December 2022 according to the IEA. We’re just not getting there at the pace required, so something has to give.
“If we go full transition too early, if you stop exploration and exploiting reserves, everyone’s bills at home will be through the roof, and the cost of living crisis will worsen (the cost of energy drives almost everything).
“If we don’t think about that, we’ve got a real potential to render Scotland and the UK uneconomic compared to other countries. We’ll be competing against countries that will continue to exploit non-renewable reserves, that have less aggressive and politicised transition strategies.
“Ultimately, our costs will be more expensive than other geographies.”
Opportunity and money in oil and gas
This is where the oil and gas industry can still prove attractive to investors, particularly if there’s a multi-market slant to their offering.
Adam continues: “There’s huge amounts of opportunity and money to be made. I think there are two elements of transition – one is being completely renewable, the other is how to do what we do cleaner and more efficiently, to reduce carbon emissions.
“We’re seeing a lot of focus from private equity around engineering, for example – the engineering talent in oil and gas is phenomenal, with that level of expertise capable of diversifying into other complex engineering markets.”
A busy year for M&A transactions
The energy transition isn’t the only interesting area when looking at recent M&A deals or trends. Technology remains important for buyers in almost any sector, with a focus on efficiencies, automation and software.
Of course, energy tech in particular has seen huge investment as the world looks to transition to more sustainable energy solutions.
And despite ongoing challenges, like interest rates and volatile government budgets, 2022 proved to be a busy year for M&A activity, as the UK continued to rebound from Covid.
That was certainly the experience of Hutcheon Mearns, which saw a record year for M&A, advising on c.£500m of transactions, with over £100m in the last 3 months alone.
Adam said: “We were really fortunate, we worked on the highest number of pureplay M&A transactions over the last year, all with an international slant.
“We’ve had a wide cross section of deal types, ranging from smaller stage fundraising and general strategic support for companies through to high value Californian tech plays and a return to an active period in mid-market M&A.”
Hutcheon Mearns’ recent M&A deals
Key recent M&A deals for Hutcheon Mearns include:
- Sale of Eftech International to Well Services Group
- Sale of Aubin to Italmatch
- EGM investments in Tigo, Electrical Grid Monitoring & Enact
- Sale of Morphpackers to Vertice Oil Tools
- Sale of DeltaTek to Expro
- Sale of Global E&C to SCF Partners
Led by managing director Adam Maitland, Hutcheon Mearns’ corporate finance and M&A team has grown to keep up with demand for services.
Chartered Accountant (CA) Naill Benzahia – a part of the team since day one – is now corporate finance associate director, while investment banker and CA Matthew Graham joined as corporate finance director.
The team now also provides a financial due diligence service, with Craig Lyon joining Hutcheon Mearns to head up this new offering.
Looking to 2023: future challenges for M&A deals
So, recent M&A deals and trends aside, what’s next? Adam says: “The focus for deals now is: how long does strong trading last? Is it another cycle? And what’s going to happen with the wider economy?
“We’ve had a reasonable amount of headwind with volatile government budgets and interest rate rises impacting debt availability, which tempered activity a little towards the end of 2022, but Scotland remains a buoyant market.”
The M&A forecast for the next year is still positive, thanks to trade appetite and Private Equity “dry powder”, although some challenges are expected.
Adam explains: “Interest rates are through the roof. Everything is becoming more expensive and the cost of living crisis is impacting companies. With all of this in mind, I suspect there’ll be a softening of valuations in general M&A over the coming year.
“However, we do think a lot of deals will hit the market, but they’ll probably be a little bit harder to get over the line than pre-covid.”
The right deal at the right time
That’s why expert advice is an essential step for anyone considering selling. Adam says: “It can streamline transactions, align parties and ensure the right value is placed on a business. The challenge is, we see so many sellers who think ‘we’ve had a knock on the door, we can do this ourselves’.
“That’s a great idea at the start, until you get into it and your info isn’t up to scratch, or you negotiate on points you don’t understand or aren’t in the best front-footed position to negotiate on. Ultimately, it will lead to a worse deal for you.
“The biggest risk in a transaction is time. The longer it takes, the more time there is for a curveball or something to happen in your or the buyer’s business. Being well prepared, having your information in order and getting through diligence quickly has value.”
Hutcheon Mearns can help your business get the best M&A deal possible. The firm also offers a range of other services to help get your business finances in shape, from interim specialist support to executive search and more.
