Megadeals highlight resilience of construction and EMU industries

Consolidation and alternative energy drive big-ticket energy, mining and utilities M&A

Global dealmaking in the construction and energy, mining and utilities (EMU) sectors has cooled over the course of 2023. There were 2,927 deals announced across the sectors through the first nine months of the year, down 12.7 percent from the same period last year. The 788 transactions announced in Q3 represent the lowest quarterly total since the 731 announced in Q2 2020, when the onset of COVID-19 ground global dealmaking to a halt.

The decline in aggregate value in the last quarter was a little less pronounced. Despite posting the smallest number of transactions of the past three years, Q3’s deals were worth a combined US$126.5 billion, greater than the US$116.6 billion accrued in Q1 with the considerably higher volume of 1,160 deals.

Overall, the first three quarters of 2023 generated US$411 billion worth of construction and EMU deals, down 11.8 percent from the same period in 2022. By way of comparison, the global M&A arena across all sectors recorded declines of 19.7 percent in volume and 28.5 percent in value over the same period, indicating greater resilience in the construction and EMU industries.

Although several very large EMU and construction deals were announced in the first three quarters of 2023, these were easily eclipsed in early Q4 with the announcement of ExxonMobil’s proposed US$59.5 billion bid for Pioneer Natural Resources. Following the completion of the transaction, Exxon would become the foremost energy group in the Permian Basin, the massive Texas and New Mexico oil field that Scott Sheffield, Pioneer’s CEO, has said is “as big as Saudi Arabia” when accounting for “all the natural gas and the natural gas liquids with the oil” available.

The deal was approximately twice as large as any other EMU deal this year at the time of its announcement, and it may have signaled the start of a bout of consolidation in the US shale oil space. In fact, less than two weeks later, oil and gas supermajor Chevron agreed to acquire US-based Hess, the world’s 26th-largest oil and gas company by market capitalization, for US$53 billion. If the deal goes through, it will be the largest in Chevron’s history and help diversify the supermajor’s portfolio of oil assets, which are currently concentrated in the Permian Basin. Hess controls significant assets in Guyana, where the largest oil discovery of the past decade was made.

Gold rush 

In the mining industry, one of the biggest M&A stories of the year so far is Glencore’s approach to Canadian coal and copper miner Teck Resources. The company began pursuing Teck in late 2022, but proceedings since then have been tense, with multiple offers and counteroffers being brought to the table.

Glencore originally intended to acquire Teck in its entirety in a US$23 billion cash-and-share bid, before the latter’s steelmaking coal business become the sole target as of April 2023. Glencore had previously offered US$8.2 billion in cash for the coal business and, according to its most recent half-year report, remains willing to acquire Teck. Though multiple bidders have expressed interest in Teck as a whole or the possibility of a spin-off, Glencore is still the prime contender.

Mining also contributed this year’s next-largest EMU transaction to date when US-based Newmont, the world’s largest gold miner, moved to acquire Australia’s Newcrest Mining in May. The deal valued Newcrest at around US$19 billion, expanding Newmont’s portfolio of assets across low-risk mining jurisdictions.

Gold has a complicated relationship with macroeconomic conditions. High inflation sees demand for gold rise as investors seek a safe hedge against increasing prices. At the same time, higher interest rates make interest-bearing assets comparatively attractive. The price of gold rose steadily through early 2023, from around US$1,800 per ounce to over US$2,000 in early May before beginning to trend. In early October the price again stood at just over US$1,800 per ounce, before the crisis sparked by Hamas’s attack on Israel led to increased demand for safe-haven assets.

Going nuclear 

Renewables are a growing theme in US energy deals, as utility companies look to scale up their exposure to the sector to future-proof their business. In March, Vistra Energy Corp announced a US$6.8 billion takeover of Energy Harbor Corp that will see it expand its nuclear power-generation capacity by some 4,000 megawatts of nuclear capacity and its customer base by about one million retail customers.

Nuclear power may play a growing role in net-zero energy projects, such as the Great Lakes Clean Hydrogen (GLCH) project in the US. GLCH hopes to develop low-carbon hydrogen via electrolysis at the Davis-Besse Nuclear Power Station in Ohio, which is owned and operated by Energy Harbor, and to distribute the hydrogen across the Great Lakes region by pipeline and road transportation.

The US nuclear industry saw rapid growth in the 1970s and 1980s before plateauing. The country’s reactors deliver around one-fifth of its electricity and more than half of its emissions-free electricity, though growth has stalled over the past three decades, resulting in an aging reactor fleet. The average age of a reactor in the US is about 40 years, and many are nearing the end of their operating lives. The cost of replacing them has hamstrung the sector, but the Inflation Reduction Act (IRA), signed into law in August 2022, seeks to address this hurdle.

Acts of good faith 

In a major victory for the industry, the IRA creates a technology-agnostic tax credit for zero-carbon power production worth US$25 per megawatt-hour for the first ten years of plant operation, starting in 2025. The legislation also includes funding for the Nuclear Regulatory Commission to oversee the construction and operation of new nuclear power plants.

Combined with the Bipartisan Infrastructure Law, passed in November 2021, this landmark legislation will see vast sums of funding channeled into US energy and infrastructure assets. The infrastructure bill provides US$1.2 trillion in funding for projects including roads, bridges, airports, water systems, the energy grid and broadband internet. The IRA, meanwhile, provides US$1.9 trillion in tax cuts and spending increases, including tax credits for renewable energy and energy-efficient home improvements.

The US is at the beginning of a wave of investment, and companies and investors are actively acquiring and sizing up assets that will help them take advantage of this unprecedented funding initiative, which looks set to modernize the country’s aging infrastructure and put it on the path to net zero.

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