The energy sector was, once again, very much to the fore when it came to Scottish mergers and acquisitions (M&A) activity in 2022.
And in a sign of what the future is likely to hold as we move towards net-zero emissions, renewables overshadowed oil and gas.
Taking centre stage was the ScotWind leasing process, which allowed developers to apply for seabed rights to plan and then build wind farms in Scottish waters.
Twenty proposed projects could see nearly £30 billion of initial investment in the years ahead. Work on these is expected to give a massive economic boost to Scotland.
Despite the major focus on ScotWind, there was still plenty of action in oil and gas last year.
The UK’s energy sector – both traditional oil & gas and renewables – will continue to attract high-level investors in 2023 and fuel significant M&A activity.”
Brian Thumath, expert in energy M&A, Pinsent Masons
Aberdeen-based Ithaca Energy was probably the most high-profile player, with two significant moves.
Last spring it announced it was taking over Siccar Point Energy for up to £1.21bn.
The acquisition positioned Ithaca as one of the leading explorers and producers in the UK North Sea through the addition of four of the country’s largest fields to its portfolio.
Britain’s biggest IPO
Then, at the end of the year, the firm defied volatile markets with Britain’s largest initial public offering (IPO) of 2022. Ithaca’s IPO gave the company a valuation of £2.45bn.
Aberdeen-based consulting and engineering group Wood was also in the news last year when it sold its built environment consulting arm to WSP Global for more than £1.5bn.
The business unit has more than 100 offices, predominantly in North America, with others located in the UK and elsewhere in Europe. It employs around 5,500 consultants and technicians.
So what are the views of those working in the M&A field?
Martin Ewan, partner and corporate law expert with Brodies in Aberdeen, said: “Last year was uneven.
“It started well, as the post-Covid recovery fuelled economic optimism and high hydrocarbon prices buoyed oil and gas sector activity.
Chancellor’s chill factor
“But it ended with a chill over private-equity activity, following the Kwasi Kwarteng mini-Budget.
“There was rekindled industrial and domestic demand for energy in 2022, together with supply-side shocks and super-charged profits for the oil and gas majors.
“This resulted in a level of transactional activity which had not been seen locally since the 2015-16 oil price downturn.”
Mr Ewan added: “It provided renewed confidence to the energy services sector, which had been embattled by a combination of low margins and anti-fossil fuel sentiment.
“We have also seen exploration and production companies explore options to use the (Scottish) government’s Intog (innovation and targeted oil and gas) scheme to incentivise the development of offshore wind farms alongside existing installations.”
Last year… ended with a chill over private-equity activity, following the Kwasi Kwarteng mini-Budget.
Martin Ewan, corporate law expert, Brodies
The lawyer feels private equity is still broadly moving away from oil and gas.
He explained: “For most of the last two years at least, the discussion about private equity in oil and gas services has been about how to exit.
“At the extreme end of the spectrum, this has led to predictions of undiversified oil and gas services companies having nil terminal value in a time horizon within our working generation.
“However, during 2022, the conversations became more nuanced.
“The tragedy in Ukraine illustrated the importance of domestic energy security and sky-high energy prices in the UK laid bare the strength of demand.”
Ithaca Energy flotation a ‘hugely positive’ experience
Brian Thumath, partner and specialist in energy M&A at law firm Pinsent Masons, said: “The UK’s energy sector – both oil & gas and renewables – will continue to attract high-level investors in 2023 and fuel significant M&A activity, particularly as the pivot from hydrocarbons to lower-carbon energy gathers speed.
“It was hugely positive to be engaged in one of last year’s standout IPOs, with Ithaca Energy’s London Stock Exchange listing.
“With the UK market for flotations still uncertain, it may be a while before we see another substantial listing.”
Energy requirements will increasingly be met by renewables and lower-carbon sources.
There is a “careful balance” to be struck in developing a long-term sustainable energy policy, Mr Thumath said.
He explained: “It is one which balances current realities of the carbon cost of oil and gas production in the UK versus imports from overseas, energy security and the requirements of our renewable industry as it strives to deliver the significant projects necessary to deliver net-zero targets.”
Renewables M&A will be ‘buoyant’
But there is plenty to be optimistic about, he said, adding: “M&A activity in the renewables space will continue to be buoyant.
“There is strong domestic and international investor interest in Scotland’s world-class renewables sector, covering the gamut of onshore and offshore wind, solar, hydrogen, carbon capture and energy storage.
“There are a variety of substantial renewables portfolios coming to market, along with large standalone projects, which are likely to attract keen M&A interest.”
International investors are “increasingly alert” to renewables opportunities in the Scottish market, Pinsent’s M&A expert said.
Examples of interest from south-east Asia include Malaysian company Tenaga Nasional, which acquired UK onshore assets as part of its energy transition.
Mr Thumath added: “International investment is also to the fore among successful ScotWind bidders, with consortia and development joint ventures consisting of Belgian, French, Italian and Norwegian companies involved in the development of these nationally significant projects.”
Over and above substantial resources at the disposal of global energy giants, there are new sources of finance.
Investment funds, private equity, contractors, alternative non-bank lenders and the Scottish National Investment Bank are all eager to facilitate the energy transition, Mr Thumath said.
Aberdeen is poised to benefit from the pivot by exploration and production majors into renewables.
A requirement for technological innovation to overcome issues posed by the move to net-zero and the ongoing supply chain swing as service companies get into position to service the broader energy industry are also expected to give the Granite City a boost.
‘Notable’ energy supply chain deals
All of this will, hopefully, drive M&A activity, particularly in the supply chain, Mr Thumath added.
He continued: “There have been notable service company and supply chain deals in the north-east which demonstrate continued interest in the people, technology and manufacturing which will be vital to delivering the next phase of Scotland’s energy future.”
Energy storage is said to be increasingly a focal point of deal activity.
Mr Thumath added: “Well-funded American and international investors are looking to acquire significant grid-scale battery storage projects. This echoes our experience advising on the sale of some of the largest ready-to-build battery energy storage system projects in Europe – located here in Scotland.”
Danny Anderson, associate, corporate, at law firm Aberdein Considine, confirmed 2022 was another strong year for deals activity in Scotland, despite unprecedented uncertainty at home and abroad.
Mr Anderson said: “Throughout all the disruption, there remains one constant – investors and business owners still consider M&A as a key part of their strategic plans for growth, expansion and value realisation.
“Many firms have proved their resilience and ability to adapt in order to deal with rapidly changing market conditions.
Long-term approach
“It is clear that, for the right opportunities, acquirers and investors are prepared to take a long-term view.”
He added: “The corporate team at Aberdein Considine – which advises mainly owners, investors and management teams in the SME (small and medium-sized enterprise) space – have seen a high level of activity, with sectors including energy, technology and healthcare continuing to perform strongly in terms of deal volume and value.
“Notable work across the year included advising Porter Pharmacy on acquisitions in Westhill, Vulcan Completion Products on its equity investment from Sawafi and the shareholders of Cable Solutions in its disposal to Dron & Dickson.”
Mr Anderson also noted that although activity for distressed businesses has been a feature of the M&A market, it was less common than expected in 2022.
He went on: “We anticipate there will be increasing opportunities ahead as the impact of the macroeconomic uncertainties and withdrawal of government support schemes start to hit home.”
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