10 takeaways on energy M&A


Proactive steps to power your business through COVID-19


This is an especially challenging time in the energy industry. Covid-19 and measures to contain it have dramatically slowed economic activity and depressed commuting and travel in particular. Energy faces an additional challenge from OPEC and Russia’s production moves, and commodity prices briefly entered negative territory for the first time.


Yet some opportunities and proactive steps emerged during a recent webinar hosted by Grant Thornton Energy Industry team members. See our infographic


  1. Cash is the once and future king. Focus on cash management. A poll of attendees confirmed the importance of cash management — placing it above price improvement, private equity (PE) investment or government stimulus. Of course, this means prioritizing liquidity and capital resources. It may also mean exploring creative ways, such as stock packages, to keep essential employees.

    Valuation is key and cash flow will drive valuation. A majority of webinar attendees considered valuation very or somewhat important. Said Bryan Benoit, Global Valuation Services leader and partner-in-charge, U.S. Energy, Advisory, “Can you look at multiples? In my view, you can’t. There’s just too much noise going on. You’ve got to look at cash flow.”

  2. Pay special attention to duration and documentation. Start to look at June and July contracts. Kevin Schroeder, national and global managing partner, Energy Industry, thinks the real test will be late summer, as schools prepare to reopen. “A lot of people look at August as being a very important month for the global economy.”

    Schroeder continued, “The biggest concern is the supply and storage we’re building.” A full return will require both the return of demand and the depletion of our current excess inventory. Each management team will have its own views on how long the downturn will last. Given the volatility of the present time, it’s especially important to document your position. The majority of webinar participants anticipate a fourth-quarter rebound.

  3. Be proactive. If you anticipate that assets will be impaired or your ability to keep debt covenants may be compromised, reach out to bankers and creditors.

  4. Remember: This is an exceptionally resilient industry. Although the current situation is unique, the industry has weathered numerous downturns in past decades. We can learn from those, both in terms of the metrics we apply and the paths forward we pursue.

  5. This is a good labor market. Even a few months ago, it was challenging to staff many projects, especially more remote ones. Qualified people may be much more likely to take those positions now.

  6. Look for opportunity in renewables and environmental, social and governance (ESG) areas. There is not as much PE money as the industry would like — deals were down even in 2019 — yet there is still opportunity in deals that align with ESG investment values. The ongoing capture and creation of value around natural gas and the development of cost-effective storage for solar is particularly noteworthy.

    It’s no accident that oil companies are investing in renewables; they understand how energy works and are in a position to deliver breakthroughs, often outside the solar and wind paradigm.

  7. There may be gold in water. A poll of webinar attendees indicated that, while all sectors will be affected by both overall industry conditions and adjacent sectors, the midstream will be affected less. Recently, there has been substantial investment in water infrastructure to serve areas well suited to production but not well supplied with water.

  8. Paradoxically, reduced investment may lead to greater innovation. Traditional CapEx budgets are being cut. Given the size of those budgets in energy, companies may be able to fund substantially smaller innovation projects such as automation and data analysis. These are areas where energy has traditionally lagged other industries; this could be a real opportunity for advancement.

    In unique situations some energy companies that pursue innovation aggressively enough may be able to reposition themselves as tech companies, which trade at more favorable multiples.

  9. There is a rare possibility of direct or indirect stimulus. The energy sector is seldom the direct beneficiary of government stimulus programs. However, the support provided to the financial sector may well have indirect positive effects on energy.

    In addition, later stimulus packages may include infrastructure components, which would also benefit energy companies.

  10. There is money available and there may be some attractive valuations. The current market may provide some real opportunities for those who are in a position to take advantage of them. In evaluating those deals, the most meaningful metric will be cash flow. Given the noise in the channel, multiples will be less relevant. .

    In addition, these dramatically changing times may prompt buyers to adjust traditional metrics. Benoit noted, “In a normal environment, we’re looking at five-year weekly betas. So should we be looking at two-year weeklies?”

    Added Kyle Reid, partner, Transaction Advisory Services, “Deals may be in assets, rather than companies.”



Bryan Benoit

Bryan Benoit is a partner in the US Strategy and Transactions practice and the Global Valuation Co-Leader. Further, he is a principal in Grant Thornton Financial Advisors LLC, providing fairness opinions and other board services. In addition, he serves as the US National Managing Partner, Energy.

Houston, Texas

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