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  1. Our thinking
  2. Transformational M&A
  3. Setting up businesses/projects to facilitate M&A and realise synergies in future is critical
Setting up businesses/projects to facilitate M&A and realise synergies in future is critical
10 key trends in transition M&A
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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.

The issue of future monetisation of assets may be addressed differently in respect of large-scale energy transition projects, such as new CCS initiatives and green hydrogen developments. Here, one of the often-overlooked key success points can be ensuring at an early stage of project design that the project is conceived with future M&A and value realisation in mind.

Distinctions can also be made between (i) core assets; and (ii) the ancillary services that build, run and support the assets. The latter category of business often lends itself to accelerated growth and, with the associated returns profile, is particularly attractive to private equity investment, says Freshfields Partner and head of the firm’s energy and natural resources practice in Asia Philip Morgan. 'Spin-offs of non-core service businesses may allow for tangible and relatively quick monetisation and return on investment as well as providing capital for future core asset development.'

In the case of green hydrogen (which may comprise a large-scale renewables power generation facility with battery storage, an electrolyser facility with compressor, and a green ammonia plant with storage and offtake facilities), there are a number of opportunities to create separate profit centres which could be separately monetised in the future through M&A.

To achieve this requires careful thought at the business modelling and planning stage, subsequently supported by a clearly understood and robust contractual framework to implement a segmented project design.

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Spin-offs of non-core service businesses may allow for tangible and relatively quick monetisation and return on investment as well as providing capital for future core asset development.

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

Attempting to reconfigure projects post-development to achieve monetisation, as has been attempted or considered in respect of a number of LNG liquefaction projects to enable, for example, the sale of key pipelines to infrastructure players, can be extremely challenging, says Freshfields Partner James Chapman, advising to work through these issues at the project conception stage.

'Ensuring that arrangements between stakeholders allow the right kind of future M&A is also important, not just from the business model structuring mentioned above, but also in the traditional drag and tag rights, right of first offer/refusal and lock-in periods that often feature in infrastructure M&A discussions, and related restrictions in any financing.'

Striking the right balance between having the right partners in a business at the right time – sometimes providing construction expertise, sometimes IP, sometimes a route to market – with the need for shareholders to exit and recycle capital is a delicate operation that is often more critical in a new business area.

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.

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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.

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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
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.

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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