M&A trends in energy, natural resources, & chemicals Q1’23

Deal volume and value for the energy, natural resources, and chemicals (ENRC) sector in Q1’23 continued to decline quarter-over-quarter. This trend applied to both strategic and private equity (PE) deals, as well as all subsectors with the exception of deal value for chemicals. 

Decarbonization was a key consideration for the sector. Oil and gas (O&G) companies and PE firms continued to divest their carbon-intensive assets and look for acquisitions that could improve their environmental profile. Power and utilities (P&U) remained focused on developing their zero-carbon electricity generation portfolios. Renewable energy players sought new opportunities through the Inflation Reduction Act (IRA) to accelerate the deployment of solar, wind, electrified transportation, energy storage, and carbon-capture projects.

In the chemicals industry, companies divested noncore assets and remained wary of undergoing big-ticket deals due to macroeconomic uncertainty and growing scrutiny involving antitrust regulations. Higher valuations and increases in the cost of debt also created barriers for investment.

Key considerations as we look ahead

• Keep a close eye on a possible recession, continued inflation, and more Federal Reserve rate hikes.
• Develop creative financing for deals that accommodates rising capital costs and cash flow contractions.
• For proper due diligence, carefully analyze supply chain costs and possible exposure to China-based manufacturing.