November Elections Could Reshape Energy M&A Strategy and Regulation

With the 2024 U.S. presidential election rapidly approaching, energy mergers and acquisitions (M&A) professionals are considering how a new presidency could impact the transaction planning, structuring and execution of deals, including how the candidates are likely to approach regulation, especially around M&A.

Both candidates are prioritizing different energy subsectors as part of their economic vision for the U.S. For example, former President Trump supports an energy policy that seeks to make the country an energy leader through a combination of oil, gas and fracking. In contrast, Vice President Harris supports green energy and electric vehicle (EV) transition plans. The election outcome is likely to influence the volume of deals in the subsectors that each candidate supports.

COMMENTARY

Dealmakers are extending transaction timelines in response to concerns over potential regulatory changes stemming from global elections. A survey of more than 620 global M&A professionals in the US, UK, France and Germany shows that over 45% of global dealmakers have extended their timelines this year to accommodate potential election-related disruptions, including regulatory changes. Additionally, most global dealmakers expect risk assessment to be the most challenging part of the deal process to complete in the next 12 months.

Yet, as research shows, economic trends have a bigger consequential impact on M&A deals in comparison to election cycles. While the upcoming US presidential election brings a degree of uncertainty to the market, history shows that M&A deal value has declined between election day and year-end in four of the last seven election cycles, and that a double-digit gain occurred in only two of those cycles (1992 and 2004).

Perhaps more importantly, is the Fed’s September decision to cut rates by 0.5%. This move has already been factored into dealmakers’ strategies, as evidenced by the increase of activity on Datasite, which annually facilitates nearly 15,000 new deals. Sell sidedeal kickoffs were up 17% in the first half of 2024 compared to the same time last year, and since this activity represents deals at their inception rather than publicly announced, it provides a good indication of what’s to come in the next six to nine months.

Still, M&A dealmakers, especially in the energy sector, continue to operate cautiously. Energy sell side deals were the only sector to decline in the first half of this year versus last year. This likely reflects dealmakers putting off new sale processes to digest the 2023 pipeline, but also a more cautious approach to dealmaking in general.

Sell-side dealmakers are placing a greater emphasis on the quality of a deal, while buyers are seeking deeper insights, necessitating greater disclosures from sellers, and reflecting a more discerning approach to dealmaking, where thoroughness is prioritized over haste. For example, due diligence is becoming an even more significant part of the dealmaking process. In the Americas, the average number of days for preparing a deal increased by 27% in H1 2024 compared to the same period a year ago, while the time to complete due diligence also increased by two days during the same period.

Additionally, content in Datasite’s virtual data rooms is up 50% on average per deal for the first half of this year compared to the same period a year ago.

This is why it’s crucial to have the right tools to effectively and efficiently manage deal risks, whether they are regulatory, geopolitical or financial. Technology, including advanced technologies such as artificial intelligence (AI) and generative AI, can streamline and mitigate the risks in M&A processes by automating manual and time-consuming tasks, such as organising and categorising files needed for review by potential investors or purchasers, while simultaneously reducing human error and ensuring better regulatory compliance. Additionally, new technologies can help lighten workloads and accelerate progress.

Moving forward, whatever the election outcome, efficient and effective planning and the right technology to manage risks will be key to successful energy dealmaking.

—Todd Albright is Global Chief Revenue Officer for Datasite.