Virtual Data Rooms for Energy Transactions

While for the moment fossil fuel remains the most important energy source all around the world, the race to transition to renewable energy is pushing investments and M&A in the energy sector. 

According to statistics published by White & Case, in 2021, of all the deals in the energy industry that moved more than US$1 billion, 20% were energy transition deals. The same source shows that 2022 was a record year for M&A in the energy industry worldwide, with over 1,200 transactions done.

Since you are on this page, it’s probable that you too are involved — or planning to be — in an energy sector M&A deal. If you are looking for a few key facts about the global energy market in 2023, and are interested in finding out what software tools can help you optimize your deal processes, like due diligence data rooms, this is the right page for you.

Best virtual data rooms for energy transactions

With the energy market this hot, and getting hotter, what are some of the tools your company can use to get ahead in energy transactions? 

On this page, we are looking at one specific tool that is indispensable for any M&A transaction — the virtual data room.

You may have used a VDR already, and in that case you know a virtual data room platform is a highly secure online repository where companies can:

1. Securely store confidential documents and sensitive data knowing they are protected by a host of security measures.
   
2. Manage documents and folders quickly and effectively — rename uploaded documents, change folder structures etc.
   
3. Easily share those documents and information with multiple parties, such as potential investors.
   
4. Collaborate on documents, and answer prospects and auditors’ questions without difficulty or delay.
   
5. Keep full control of who has access to what data in the virtual data room through advanced user permissions.

It’s easy to see the benefits of virtual data rooms over physical data rooms, and why they are indispensable for M&A deals, due diligence, bid management, and any other processes that demand secure sharing of data. Virtual data rooms:

• Ensure security for all confidential information
• Make it possible to access documents remotely
• Render collaboration easy
• Speed up due diligence and other processes
• Save money

As you can imagine, though, it’s not easy to talk about the best virtual data room in absolute terms. After all, “best” is relative to you and your needs! However, we can point out a few leading virtual data room providers that both have extensive experience in facilitating transactions in the energy industry, and get great reviews from their customers.

The most common deals of energy providers

Companies operating in the energy industry are constantly changing in order to adapt to market changes, new opportunities, new competition, and so on. They do this through different kinds of internal and external business processes (which are often interlinked). For instance:

• M&A. Companies in the energy sector carry out mergers and acquisitions with the same general goal of companies in other industries: to reduce costs and increase gains by benefiting from synergies. And as in other industries, the intermediary goals can be very diverse. For instance, an energy company could buy another as an easier way to move into a new market, as a way to acquire expertise it does not have, or as a way to grow bigger so as better to face a new competitor.
  
• Restructuring. This is a broad term that can refer to any serious changes to a company’s structure — and not only its organizational structure (departments, sectors, hierarchy lines etc.) but also its financial structure (funding and debt management) and operational structure (locations, workflows). The usual objective of a restructuring is to reduce costs and improve efficiency — but it can also be a case of regaining credibility, as with the Petrobras restructuring that ensued the corruption scandals uncovered by Operation Car Wash.
  
• Licensing. The process of obtaining authorization for specific operations in the energy industry involves government and international agencies. Energy companies that respect national and international laws must fulfill a number of conditions, file reports, fill forms, undergo environmental audits and inspections etc. in order to receive the necessary permits.
  
• Divesting. If investing is one side of the coin, divesting is the other. It means a company sells assets instead of buying them. In the energy sector, divesting can happen for instance when a company decides to withdraw from the fossil fuel industry and therefore sells its shares in companies that operate with oil, gas or coal.
  
• Equity stake sales. This form of equity financing means the acquiring company buys part of the ownership of the other company — they will have a say on how the company is run. For instance, an energy company that needs extra funds to expand operations could sell equity shares to a private equity fund.

Particularities of M&A deals in the energy industry

Every industry has its own particularities, and it’s not any different with energy. A few specificities of mergers and acquisitions in this sector are:

• When clean energy companies merge, it can be possible to benefit from tax credits and other governmental incentives intended to encourage investment in renewable energies.
  
• Specific licensing and environmental audits are needed during an energy M&A, in order to guarantee that the combined companies will not harm the environment.
  
• Companies may need to fulfill obligations not only towards the government, but also towards supra-national organizations such as the EU or international regulatory agencies.

Due to the particularities of the energy sector in each country, it’s important to work with qualified local advisors when moving into the energy market in a foreign country. This prevents any unpleasant surprises and makes it possible to make the most of favorable laws and regulations.

Recent M&A deals in the energy sector

Among hundreds of fossil fuel and renewable energy companies doing mergers and acquisitions in the energy industry worldwide, a few stand out for the sheer number of transactions they carried out between January 2020 and January 2023.

Sonnedix

French company Sonnedix announced 54 deals in the last three years, the most remarkable probably being the acquisition of Chilean company ARCO Energy. Sonnedix was already operating in Chile as a solar energy producer, but with this acquisition, they moved into the wind energy space. Chile is currently the second most attractive Latin American market for investing in renewable energy projects, the first being Brazil.

Octopus

UK-based Octopus Energy is among the top companies in number of M&A deals in the last three years, with 30 transactions announced. Of these, the two most important ones were the equity stake sales to Australian company Origin Energy and Japanese company Tokyo Gas. The first deal increased the value of Octopus to over US$ 2 billion, while the second raised it to US$ 2.1 billion.

Enel

Earlier this year, Italian company Enel announced it is selling its part in the Romanian power business to Greek utility PPC, as part of a move to focus on higher-growth countries. This is one of 27 deals announced by Enel in the last three years. The sale, which is moving 1.26 billion euros, is expected to be completed by Q3 2023. Enel is also on the way to making a sale in Brazil, though on a more modest scale. It has put up Coelce for sale for around US$ 1.4 billion — in fact, Enel is one of several energy companies that are seeking to sell parts of their businesses in Brazil.

Key facts about the energy market in 2023

• Oil, the main primary source of energy in the world, makes up 29% of global consumption. Coal and gas come as a close second and third, with 27% and 24%.
• In 2023, the share of renewable energies in final energy consumption around the world is very uneven. While in the US, China and India it hovers around the 12% mark, in the EU renewable energies account for over 20% of the final energy consumption, and in Brazil they represent a remarkable 44%.
• China is the country with the largest primary energy consumption worldwide.
• Among regions, the APAC is the main primary energy consumer.
• Investment in renewable energy worldwide has been increasing steadily and significantly. In 2004, clean energy investments totaled US$ 32 billion. In 2022, they were at US$ 495 billion.

Conclusion

Let’s do a quick recapitulation of the most important information on this page:

• Investment in the renewable energy market is growing, and the trend is expected to continue.
• Renewable energy M&A made up one-fifth of all large energy M&A deals in 2022.
• Every national energy market has its particularities, so it’s important to work with good local advisors during an M&A with a foreign energy company.
• A crucial tool for energy M&A is the virtual data room, which allows businesses to share confidential information remotely and securely.