Culture is critical in New Energy dealmaking
In the New Energy environment, culture may sometimes trump traditional calculations in determining deal success
With the prospect of a low-carbon world fast approaching, the global trend towards cleaner sources of energy underpinned by digital transformation technologies is giving rise to a new sector known as New Energy.
Energy businesses are moving to adapt to these trends, and this transition has generated a number of investment opportunities. M&A represents the quickest way to secure the necessary technologies, know-how and competencies to thrive in this new space. Take oil and gas, where an increasing number of major players are now branching out in their New Energy acquisitions, going far beyond their core hydrocarbon businesses of oil and gas.
And deal making in the new energy space it is in a state of evolution. Whereas in the past, M&A deals in the energy sector would typically aim to increase scale, capture synergies and expand on geographical footprint, New Energy acquisitions represent a foray into a new dimension, bringing along a different set of objectives. What’s more, new energy targets tend to be either adjacent to or outside the realm of the expertise and capabilities of acquiring companies, requiring them to fill in competence gaps in domains where they have little to no familiarity.
The right fit
In this environment, culture may sometimes trump traditional calculations in determining deal success. For New Energy deals, acquiring companies may wish to replicate the same unique conditions and capabilities that have enabled the target to succeed in the first place. Ideally, the transaction can have a transformative impact on the acquiring organization, importing the culture of the acquired company to the parent, ushering in desirable values such as nimbleness, entrepreneurialism and innovation.
In Creating value beyond the deal: culture is critical in New Energy dealmaking, we conclude that acquiring companies often have a firm handle on the importance of culture, though they lack a systematic approach to managing culture during the acquisition process. Yet getting culture right—vetting and cultivating it throughout the integration process—represents one of the most important factors to the ultimate success of a deal. According to PwC’s M&A report, Creating value beyond the deal, 65% of acquirers say that cultural issues have gotten in the way of value creation in their last deal. Yet culture is a company’s most vital intangible asset—difficult to define and measure, yet key to driving long-term growth and prosperity.
Another important consideration for cultural due diligence is assessing “cultural fit.” While integration may not require both the parent and target to share exactly the same culture, some commonalities are needed, particularly in areas such as ethics, sustainability and safety. Many acquirers go as far as to prioritise making their companies more attractive to the target, articulating a clear vision to persuade startups on the merits of integration. Other potential stumbling blocks that can arise in due diligence include core governance and compliance, which can often kill a deal when compromises are not found.
And while most business leaders possess an intuitive understanding of managing culture and may take informal steps to sustain it—ranging from casual meetings, culture champions and staff secondments—developing a more formal process for cultural due diligence can significantly bolster the rate of success, while taking out much of the guesswork. Acquirers could benefit greatly from developing a value creation blueprint during the pre-deal phase that puts culture at its heart. We’ve mapped out a possible framework for value creation, along with steps that can assist in timely decision-making during the pre-deal phase.
As a completely new way of doing M&A, acquisitions in New Energy occupy uncharted territory for most. To energy companies, businesses such as battery storage, energy efficiency, EV charging and renewable generation represent a completely new asset class. These factors combine to compound deal complexity, leaving deal-makers without a set of pre-existing standards from which to reference. Sourcing the right advisory support which can understand this new space and accompanying complexities is therefore vital.
Finally, energy companies on the lookout for these new acquisitions should place culture on the same level of importance as valuation multiples. Getting culture right not only translates into the long-term success of the deal, it also allows them to thrive in the New Energy space, assuring sustainable growth well into the future.
To read the full PwC Creating value beyond the deal report, click here
To discuss what this means for your business, please contact:
Partner Deals, PwC UK
Adrian Del Maestro
Director, PwC UK
Global Energy (Oil & Gas) Advisory Leader
Principal, PwC US