Another quiet quarter: Q3’23 M&A trends in energy, natural resources, and chemicals

Q3’23 marked another quarter of significant challenges for deal makers in the energy, natural resources, and chemicals (ENRC) sector. This continuing slowdown can be attributed to several factors: inflation, rising costs, tight credit conditions, recession fears in the UK and Europe, the Russian-Ukraine war, increased economic problems in China, rising oil prices, and high private equity multiples. One exception to this trend was in the oil and gas (O&G) subsector: O&G companies were some of the biggest gainers in the S&P 500 in Q3’23, and dealmaking in O&G continues to move ahead.

And better times for the ENRC sector may lie ahead: A potential uptick in deal activity is forecast in Q4’23 and into 2024,due to factors such as increased clarity on interest rates and an accompanying decline in inflation. In the meantime, however, many investors are likely to keep their powder dry and focus on a cautious and strategic approach for rationalizing their portfolios.

ENRC dealmakers will want to be ready to move when the time is right by keeping the following strategies in mind:

• Structure deals carefully: When thinking about structuring a deal, keep an eye on softening global demand in 2024 for goods and services and how that might impact your divestment or acquiring strategy.
• Don’t overlook funding opportunities: Focus on industry-specific opportunities such as the Inflation Reduction Act, which is fueling new investments in sustainable technology with over $500 billion earmarked for tax equity and tax credits.
• Approach economic challenges with creativity: Develop creative financing plans to accommodate what likely will be high interest rates and elevated PE multiples that continue to remain well above pre-pandemic levels.

For in depth in-depth insights into M&A trends, factors effecting dealmaking in the ENRC sector and, strategies for taking advantage of investment opportunities, download our new report, Another quiet quarter: M&A trends in energy, natural resources and chemicals.