In 2023, the financial value of mergers and acquisitions in the energy sector decreased by 10% compared to the previous year. While 5 transactions, including the sale of BP's assets in Türkiye to Petrol Ofisi, with an estimated total value of USD 1.1 billion, highlighted the oil and natural gas segment, the remaining 24 transactions focused on power generation facilities and renewable energy portfolios.
PwC Türkiye published the 16th Mergers and Acquisitions in the Energy Sector Report, which analyses the mergers and acquisitions in the Turkish energy sector and comments on the developments that may affect the sector. According to the report, the total number of transactions in the Turkish energy sector remained at 29 in 2023, while the estimated total transaction value decreased from USD 2 billion to USD 1.8 billion.
According to the research, factors such as inflation, high interest rates, geopolitical crises and fluctuations in commodity prices have negatively affected the completion time of M&A negotiations and transaction values in Türkiye as in global energy markets.
Mobility in the fuel market prevented a hard landing
Unlike previous years, five transactions with an estimated total value of $1.1 billion, including the sale of BP's assets in Türkiye to Petrol Ofisi, highlighted the oil and gas segment in 2023.
While all of the remaining 24 transactions were for power generation facilities, the focus was again on renewable energy portfolios, as in previous years.
Cautious approach continues
PwC Türkiye Mergers and Acquisitions Services Partner Engin Alioğlu commented on the report: “Our research, which we conducted for the 16th time this year, shows that macroeconomic reforms have not yet been fully reflected in mergers and acquisitions in the energy market. The fact that a series of improvements in the Turkish Renewable Energy Resources Support Mechanism (YEKDEM) have so far been insufficient to incentivize these transactions, and the preference for public offerings as an alternative financing method, suggests that new, reliable and sustainable points of attraction need to be created to maintain and develop interest in assets in the Turkish energy market.
Although foreign investor interest is still alive, it is necessary to create a suitable environment for future transactions to change hands in a ‘seller’s market’ that better reflects the true value of target companies with high quality assets and labor force, rather than the current ‘buyer’s market’.
On the other hand, we consider the efforts of energy management in Türkiye to harmonize its policies and practices with the global examples shaped by the Paris Climate Agreement as a promising sign for the future of the sector.”
Highlights in the report
- The total value of 29 deals realised in the Turkish energy market in 2023 was USD 1.8 billion, down 10% year-on-year. The average deal value decreased by 5% to USD 62 million. Macroeconomic uncertainties in the global and domestic markets, the decrease in the number of assets put up for sale, especially in the electricity and natural gas markets, the preference for public offerings among financing methods and the shift in the interest of Turkish companies abroad are among the reasons for this decline.
- Five transactions, three in the fuel distribution and two in the oil exploration and extraction sectors, reached an estimated value of USD 1.1 billion, representing 61% of the total estimated transaction value.
- The number of transactions in the infrastructure sector, which consists of electricity generation, distribution, retail and natural gas distribution sub-segments, decreased from 30 in 2022 to 24 in 2023, while the total value decreased from USD 2 billion to USD 700 million.
- Small-capacity renewable energy portfolios came to the fore in the electricity market, where all acquisitions were for generation facilities. Among the thermal energy generation facilities and licenses that changed hands, geothermal energy assets attracted particular interest. No transactions were announced on the natural gas distribution and retail front in 2023.
- All announced transactions took place between private sector players.
- Four acquisitions involving foreign investors on the buy-side recorded a significant recovery compared to 2022, reaching 60% of the total transaction value.
Determining factors for 2024 and beyond
The report also includes some developments that may affect 2024 and beyond. Among these, the prominent ones are listed as follows:
- Macroeconomic developments: After the 2023 general elections, macroeconomic policies that have witnessed significant positive changes have not yet been reflected in the M&A transactions in the energy market, but the potential determination in this regard is expected to increase domestic and foreign interest in clean energy investments in the coming period.
- 12th Development Plan: The energy sector targets of the 12th Development Plan announced for the years 2024-2028 are expected to affect M&A transactions in this sector. Within this plan, the 2053 net zero emission target, energy efficiency investments, cost-based pricing practices in electricity and natural gas markets, legislation to ensure demand side participation, heat market legislation and references to small nuclear power plant investments are noteworthy.
- Commitments related to climate change: Commitments such as the draft Regulation on the Operation of Carbon Markets, the support to be provided to SMEs’ green transformation and energy efficiency projects within the scope of the Credit Guarantee Fund, and the operationalization of the Emission Trading System in 2024 are expected to affect mergers and acquisitions.
- Public offerings: The trend of public offerings, which has come to the fore in the last few years as an alternative financing method to the sale of assets, especially in the electricity generation market, is expected to continue in 2024.
- Continued restructuring in the fuel distribution market: The activity in the fuel market, which started in 2023 after a long break, is expected to continue in 2024 with new acquisitions. In this crowded environment, where the ten largest players out of a total of 35 dominate 73% of the market, potential buyer interest is expected to focus on medium-sized companies with financing difficulties.
You can find the details of the PwC research here.
