Utilities, oil and gas eye acquisitions in 2023

Large utilities and energy companies are on the hunt for acquisitions going into 2023.

Why it matters: The renewable energy ecosystem is expected to be the main target of these suitors.

What's happening: The appetite for consolidation is being driven by the profits and financial strength of utilities and energy companies, as well as their efforts to reduce emissions.

Context: Investor demand and government incentives has given rise to renewable energy projects and a host of energy management software companies that allow utilities and homeowners to access their energy use data.

What they're saying: Both the projects and software systems are attractive to buyers with money to spend and emissions goals to hit, West Monroe senior partner Jeremy Klingel tells Axios.

• "This ecosystem has evolved significantly, and in the past four or five years particularly, the interest and activity around utility-scale renewables from developed assets to development of new assets is significant," Klingel says.
• Becky Diffen of Norton Rose Fulbright pointed to Shell's acquisition of solar and energy storage company Savion in December 2021 and BP's purchase of projects from solar provider 7x in June 2021 as templates she sees being repeated.
• M&A activity was slower in 2022, Diffen says, due to the uncertainties around the solar tariffs investigation as well as policy moves that hadn't yet been finalized. With those issues resolved, she expects M&A activity to pick back up close to 2021 levels.

What to watch: Oil and gas companies are more likely to back companies working with hydrogen or carbon capture because the infrastructure for those businesses — with molecules and pipelines — is similar to what those companies already understand, Diffen says.

• Utilities, on the other hand, are more likely to pick up software businesses that easily plug into their existing data sets as well as solar or wind that are electricity businesses.

The bottom line: "Some are doing it because they have to, and some are doing it because they believe it's the future," Diffen says.