After a lacklustre start to the year, M&A activity in Western Europe’s energy sector is set to pick up the pace, according to our European Energy M&A and Investment Outlook 2024, published in association with CMS.

In H1 2023, just USD 12.6bn worth of deals were announced, less than half the USD 29.9bn logged in the same period in 2022. Yet a sizeable majority of our survey respondents (82%) say opportunities among Europe’s energy companies will increase over the next 12 months.

Corporates are notably optimistic, with 87% expecting better prospects. PE executives – many of whom have remained busy over the past few months, with three of the top-10 deals of H1 2023 by value involving PE firms – are also looking ahead for opportunities, with 67% saying conditions will improve and the remainder that they will stay the same.

Given this consensus, it is unsurprising that respondents overwhelmingly expect either to increase or maintain their levels of investment in the energy sector over the next 12 months. Nearly two-thirds (64%) plan to increase their spending, while 33% will maintain their current outlays. Just 3% expect to divest from the sector.

Solar and storage lead the way

In line with the focus on transitioning energy systems, solar and storage emerge as the most attractive subsectors for investors active in the European market. Solar is ranked as the top opportunity by 34% of respondents, and 70% cite it in their top three. The need for batteries and storage as energy systems move towards more intermittent sources of power is evident, with 57% of respondents ranking this among their top-three most attractive subsectors.

South West Europe primed for M&A activity

Echoing sentiment about the most attractive subsectors, the top region in Europe for energy investment is South West Europe, with 41% of respondents putting this in first place. A region of high solar irradiance, there is plenty of scope for growth in solar energy. While installed solar power capacity is currently more concentrated in Northern European countries, Italy, Spain and Portugal are catching up.

Supply chain and financing risks top challenges

There may be plenty of energy opportunities on the horizon, but these also come with challenges. Chief among them is supply-chain risk: 72% of respondents cite this as a top-three obstacle. Supply-chain disruptions have continued to mount post-pandemic as demand for renewable technology components and raw materials has surged. 

Cited by 70% as a top-three challenge, financing risk is the second biggest issue for respondents. This naturally reflects the elevated interest rate environment and the increased level of caution among banks and other financiers as economic conditions remain uncertain.

Outlook

The stage is set for robust investment and M&A activity in European energy over the next 12-24 months and beyond as the interim net-zero deadline of 2030 approaches. The rest of this decade will be a period of profound change across the sector, with dealmaking playing a vital role in reshaping and transforming the energy mix, repositioning existing assets and developing new infrastructure.

The report is also available to download at cms.law.