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Energy's $100 billion quarter

Illustration of money falling onto a rising stock trend line

Illustration: Annelise Capossela/Axios

Q1 data from Refinitiv showed big activity in the energy sector, and the transition to cleaner energy will keep prices higher, industry pros tell Megan.

Why it matters: The transition to cleaner energy is leaving buyers scouring the market for companies with the necessary expertise, and those are in short supply.

State of play: Charles River Associates principal Enrique Glotzer tells Megan that not only are target companies in short supply but ESG professionals are as well— which is driving up the prices per deal.

  • Other areas like carbon capture make sense to build in-house because a company is just fortifying its existing assets instead of looking to expand its capabilities, Glotzer explains.
  • Geopolitical instability, brought on in Q1 first from Omicron and later through the Russian invasion of Ukraine, has also shifted energy companies' acquisition interest from lowering cost to enhancing security.

The intrigue: Global ESG standards are still a ways off. Europe is among the leaders in instituting ESG requirements when reviewing deals, though the U.S. isn't too far behind, Glotzer says.

  • "In Europe, we can't get a deal done without thinking about climate and energy," he says.
  • However, Glotzer adds, investor interest remains one of the most significant driving factors behind the deals.
  • "Climate risk is financial risk, and investors have come to realize that," Glotzer says.

Zoom out: Though lagging behind 2021, 2022's deal numbers are nothing to sneeze at.

  • Energy deals represented two of the top 10 deals in Q1 overall.
  • Constellation Energy Corp's spin-off from Exelon on January 28 was third largest overall at $21.7 billion.
  • U.K.-based National Grid's sale of 60% equity interest in its U.K. gas transmission and metering business to a group of Australian investors was eighth largest overall at $12.6 billion.

The bottom line: As Dan Primack wrote Friday and Glotzer echoed, it's hard to extrapolate deal flow for the rest of the year based on an odd quarter. But the up-and-to-the-right trend among energy investment interest is only expected to continue.

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