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  1. Our thinking
  2. Transformational M&A
  3. No business is an island: low-carbon investment requires a full value chain
No business is an island: low-carbon investment requires a full value chain
10 key trends in transition M&A
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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.'

Related services
ESG and sustainability
Energy
Energy transition
ESG competition and collaboration
Mergers and acquisitions
Private capital
Sustainable finance and investment
Sustainable transactions
Transformational M&A 10 key trends

Transformational M&A 10 key trends

Transformational M&A
Reports
4 Jun 2024
Increased vertical and horizontal integration

Potential ramifications of government subsidies and incentives granted to a target require detailed investigation.

Reports
4 Jun 2024
Bundling small projects from SME developers into portfolios to create scale

Striking the right balance between development and generating assets in a renewables portfolio is very important.

Reports
4 Jun 2024
Traditional players moving outside of their comfort zones

M&A and JVs allow for a much speedier move into markets where one partner or target has access to and knowledge of a particular territory or has finessed a particular business line.

4 Jun 2024
New technology providers and specialist operators entering projects earlier

Parties should anticipate the path to final investment decision and project commissioning, ensuring appropriate off-ramps.

4 Jun 2024
Geography is critical for many low-carbon technologies

A in new jurisdictions or sub-sectors needs robust diligence, appropriate deal structuring and contractual protections. Allocate more time to scenario planning and contingent downside risk evaluation.

4 Jun 2024
Setting up businesses/projects to facilitate M&A and realise synergies in future is critical

Balancing the need for the right partners at the right time – providing construction expertise, IP, a route to market etc – with the need for shareholders to exit and recycle capital is often critical in a new business area.

4 Jun 2024
Sources of capital driving M&A activity (and their constraints) are changing

A positive ESG score cannot mask a poor credit prospect, but can positively affect deals with marginal economics and/or in a busy M&A deal market with constrained debt liquidity.

4 Jun 2024
Private capital trends are affecting energy transition M&A

Financial investors are discovering the difficulty of assessing and reporting on the (often varied) ESG characteristics and impact of their investments.

4 Jun 2024
Antitrust and FDI controls are influencing energy transition M&A

Getting M&A over the antitrust hurdle primarily requires demonstrating positive externalities (a climate benefit) that offsets harms to competition.

4 Jun 2024
Outlook for transition M&A

M&A is not the only mechanism by which the energy transition will be delivered, but has a far more important role than many appreciate. More conservative and organic change will likely not be enough.

Contacts
London
James ChapmanPartner
Singapore
Philip MorganPartner
London
Jake ReynoldsHead of Client Sustainability and Environment
Hamburg, London
Natascha DollPartner
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