In this episode of Data Room, Corporate Partner Neil Millar, is joined by our Corporate and Commercial Partner and Co-leader of the Energy practice, John Conlan, to discuss key trends shaping M&A in the Energy sector for 2025. They discuss the driving factors behind the expected surge in global deal activity, the challenges investors and business may face, and the outlook for New Zealand’s energy market. This episode provides valuable insights for those interested in the future of M&A in the Energy sector.
[00:13] Neil outlines the main topics of discussion, including the trends shaping M&A in the energy sector for 2025 and the challenges investors and businesses should watch out for.
[00:43] Neil asks John to recap the M&A activity in 2024. John describes 2024 as a year of two halves: the first three quarters were slow due to extensive due diligence, tougher financing conditions, and economic uncertainty, causing many transactions to stall or collapse. John also notes that the global trend of political uncertainty, with 50 elections worldwide including the U.S. election, contributed to the cautious approach by buyers and sellers.
[01:42] John explains that political certainty, falling interest rates, and a weaker New Zealand exchange rate have made the country's assets more appealing, leading to an increase in deal activity. They discuss the pre-Christmas rush to close transactions and the momentum carried into the new year. John predicts a busy year ahead, although he anticipates some bumps along the way. John also highlights regulatory changes, including shifts in New Zealand's overseas investment rules towards a risk-based approach, as a key factor driving M&A activity. Falling interest rates and businesses moving ahead with deals before conditions fully stabilise are also contributing factors.
[03:12] Neil and John discuss the excitement and uncertainty surrounding Donald Trump's re-election and its potential impact on business confidence. John explains that New Zealand remains an attractive destination for international investors, particularly in sectors like energy, infrastructure, and technology. He notes that changes to the Overseas Investment Office (OIO) regulations will make New Zealand more appealing to foreign investors. John discusses the impact of these regulatory changes on sensitive land and large-scale renewable projects, which rely on significant land areas.
[05:12] John outlines the headwinds for M&A in 2025, including ongoing regulatory scrutiny, potential changes to the Commerce Act, geopolitical uncertainties, and valuation gaps between buyers and sellers. Neil and John agree on the persistent challenge of valuation gaps in M&A deals.
[06:08] John reviews significant energy deals in 2024, such as SC Oscar's acquisition of Ranui Generation and Genesis Energy's investment in ChargeNet. He also mentions Contact Energy's bid for Manawa, which is subject to a scheme of arrangement and various regulatory steps. John attributes the surge in energy deals to government policy commitments to doubling renewable energy by 2050, creating strong demand for both domestic and international capital. He also notes that the OIO settings are becoming more favourable, further driving investment in the energy sector.
[07:38] Key challenges for the energy sector in 2025 include the lack of a deep market for long-term power purchase agreements (PPOs) and lengthy grid connection times, which create uncertainty for investors. John discusses the potential impact of the new fast-track process for resource consents, which will help speed up timetables but may still face capacity challenges at Transpower.
[08:37] Neil and John discuss the concerns of overseas investors regarding New Zealand's short election cycle and the potential for regulatory changes with each new government. John predicts more M&A activity and consolidation among smaller developers in the energy sector, as some may struggle with financing or find their projects are not viable.
[09:34] John highlights the focus on energy infrastructure, including grid-scale battery storage, which helps manage intermittent renewable energy projects, and the expansion of EV charging networks by companies like Genesis and Z Energy. They discuss the impact of cooling EV sales globally and in New Zealand, and John believes this is a temporary blip. He expects EV sales to increase again, driven by government policies and economic sense. John mentions the strong interest from international investors in New Zealand's energy infrastructure and the importance of understanding the regulatory environment.
[11:04] John provides a big picture outlook for M&A in the energy sector in 2025, predicting a strong year with rising deal volumes driven by regulatory changes, lower interest rates, and renewed investor confidence.
Information in this episode is accurate as at the date of recording, 20 February 2025.
Please contact Neil Millar or John Conlan or our M&A and Corporate team if you need legal advice and guidance on any of the topics discussed in the episode.
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