Callum Gray, Corporate Finance Partner at the AAB Group, shares his view on the impact of the energy transition on Scotland’s M&A landscape.
With the back drop of high utility prices, high inflation, fears over energy security and growing pressures of climate change, it has been notable to see that Scotland’s Energy Transition continues to gather momentum.
The short to medium term certainly looks positive as the nation entered Q2 2023 with 21.9GW of renewable energy projects at various stages of development. The offshore wind sector accounting for 10.2GW which are all expected to be delivered before the new projects in the ScotWind and INTOG leasing rounds.
Of the 10.2GW pipeline, two major projects, TotalEnergies & SSE Renewable’s Seagreen 1 and the Neart na Gaoithe site being co-developed by EDF & ESB, currently expected to be commissioned during the year.
Importantly, the Scottish Government reports that electricity generated in Scotland added on average an estimated 26.9 grams of carbon dioxide per kilowatt hour into the atmosphere (gCO2e/ kWh) being below 50g CO2 per kilowatt hour agreed as part of the 2018 Climate Change Plan.
The pipeline of renewable energy projects together with the recent announcement that the Project Acorn Cluster, which is being lead by Storrega with Harbour Energy, Shell and North Sea Midstream as partners, has been advanced to Track 2 together with Wood quoted as saying that “excellent growth” was reported across its Carbon Capture and hydrogen projects, certainly provides tangible evidence that Scotland is making progress with its Energy Transition journey towards meetings its climate change targets.
So what impact this has on the M&A landscape? Well to date, the rising cost of debt has certainly sharpened the focus of potential investors with prominent trade players seemingly seeing opportunity to capitalise as private equity look to realise some of their energy focused investments and allow those businesses to take the next step on their journeys.
This is certainly the case for companies concerned in the provision of engineering services as highlighted with RSK Group, the Preston Headquartered group with more than 200 environmental, engineering and consultancy businesses.
RSK have been particularly active as they seek to reach £5bn turnover by 2030. As part of their strategy, in the past few months acquired Aberdeen based engineering consultancy firms Axis Well Technology and PD&MS facilitating exits for their respective long term investors Elysian Capital and Inflexion.
On 1st August, Energy Transition specialist private equity fund, Bluewater announced that it had signed an agreement to sell its investment in the Saudi based energy services company Kent to Nesma & Partners. Assuming the transaction receives the required regulatory approvals, it is expected to conclude later in the year.
Following the same theme of investor backed divestments to trade players, the Business Growth Fund confirmed the sale of pipeline repair and engineering business STATS Group to the Japanese Industrial player Mitsui had completed following the required approvals being granted. The transaction forms part of Mitsui’s medium plan to 2026 to “strengthen its business processes and provide new opportunities for growth in the areas of Carbon Capture and Storage (CCS) and hydrogen.”
SCF Partners backing the MBO of Global Energy and Construction from the MacGregor family Global Energy Group would appear to buck the trend of PE divestments but certainly another creditworthy example of the interest seen in engineering and procurement companies looking to grow and support the evolving energy markets.
The MacGregor family also made a further investment in the engineering space by adding the Grangemouth based firm IKM Consulting to its portfolio of Mabbett & Associates and Apollo.
Similarly, ASCO a global provider of multi-site integrated supply base operations to the energy industry announced in last week that it had been sold to Endless, a London based mid-market fund.
So what next? Well I still expect to see a steady flow of transactions involving business with demonstrable track records in their energy transition strategies. Although the buyer landscape has changed, there remains several players with fresh capital keen to deploy to the right home.