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Energy becomes bright spot in M&A dealmaking

Energy emerged as a bright spot in M&A dealmaking last year, while other sectors such as technology and healthcare experienced lukewarm M&A deal activity.

The energy sector has been a luminous part of M&A dealmaking.

Energy deal value tallied $380.8 billion last year, up 8.26% from the previous year, according to PitchBook’s 2023 Annual Global M&A Report. That contrasts with lukewarm M&A deal activity across other sectors, such as technology and healthcare, where both deal value and deal count dropped significantly.

According to PitchBook senior PE analyst Jinny Choi, the robust momentum in energy M&A was a byproduct of cash-rich oil and gas producers going on a buying spree to fuel growth and the sustained interest of investors and corporates in energy transition projects.

The rise in crude prices in the past few years drove the consolidation wave in the traditional energy space, said Choi, sparking a handful of mammoth deals that stand to reshape the industry.

Among the oil tie-ups announced last year, Exxon Mobil agreed to purchase shale driller Pioneer Natural Resources in a deal valued at nearly $60 billion. In another example, Chevron struck an all-stock transaction to acquire Hess Corporation for $53 billion.

Major oil and gas producers gobbled their rivals to expand market share and increase reserves, betting on the continued demand for oil production.

“It’s sometimes cheaper to buy than to develop more oil and gas from the ground, so those companies that have good valuations in the public markets use that as a currency to acquire reserves,” said Tim Clarke, Pitchbook’s lead PE analyst.

While M&A in the energy sector experienced great momentum, a slowdown in dealmaking afflicted several industries that were previously the darlings of M&A investors.

Worldwide M&A deals in the tech industry reached 5,883 in 2023, a drop of roughly 24% from the previous year, according to the report. The overall value of transactions fell even more sharply, nearly 45%, from $824.13 billion in 2022 to $454.14 billion in 2023. In the report, a PitchBook scoring system measuring M&A deal momentum gives the energy sector the highest ranking, and IT the lowest.

The industry’s slowing deal activity is largely due to hard-hit valuations. Once-high-flying tech companies are not inclined to sell when they see their valuations shrink significantly, according to Clarke.

“Technology is not as sought after as it was,” he said. “There were too many deals in tech, especially during COVID, that weren’t sustainable. It was burned off.”

Additionally, the tight credit market makes it harder to finance large transactions, which consequently reduces buyers’ appetite to pursue gigantic deals worth tens of billions of dollars, Clarke added.

Featured image by Anton Petrus/Getty Images

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