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Climate M&A will shift from risk to opportunity

Climate-change dealmaking is about to get a lot more legit. Green-tinged transactions more than tripled in value in 2021 to $164 billion by early December, per Refinitiv, though there’s no standard definition for what merits the colour. There has, though, been a dearth in genuinely environmentally useful tie-ups. Expect more to emerge.

Some transactions claiming a climate rationale are just ecological virtue signalling. Santos boss Kevin Gallagher argues his firm’s recent $6 billion embrace of Oil Search will help to “successfully navigate the transition to a lower carbon future”, yet he’ll increase fossil-gas drilling more than 45% to get there.

Special-purpose acquisition companies, meanwhile, dominate the eco-friendly deals list, topped by multi-billion-dollar swoops for electric-vehicle makers Polestar and Lucid. These, though, are more capital-raising public listings – albeit by by the SPAC door – than mergers.

Climate-risk avoidance has been the biggest driver for the past two years, like the $50 billion creation of carmaker Stellantis. Ditto BHP’s $16 billion oil-and-gas sale to Woodside Petroleum and offloading of coal assets, or Anglo American’s Thungela Resources coal miner spinoff. These mitigate corporate exposures. They don’t tackle overall greenhouse-gas emissions.

That’ll be the next big M&A thing. It may involve, for instance, upstart electric-vehicle makers like Lucid, Polestar or Rivian Automotive combining. Equally, smaller players such as Nikola, valued at $4 billion in mid-December, could make tasty morsels for lagging behemoths like Toyota Motor or Nissan Motor.

Large environmental companies like $66 billion Ecolab and $22 billion Xylem have a history of making bolt-on acquisitions. They’re potential prey as well as predator for conglomerates like Danaher and Honeywell. Software could be in the mix too: $61 billion Autodesk in February bought H2O data-infrastructure specialist Innovyze for $1 billion. Such capabilities could interest green-preening tech giants like Microsoft or Alphabet.

Financial institutions need environmental data, too. Some 450 joined the Glasgow Financial Alliance for Net Zero, but few have all the resources to assess client portfolios in detail. Figuring out, say, how to finance retrofitting a fleet of CO2-belching container ships will earn more than a credit facility. Plenty will ape Moody’s, which paid $2 billion for climate-analytics company RMS. Targets may include newbies Aquantix and geospatial specialists like Kayrros. It’s time to seize opportunities, not just offload risks.
Source: Reuters (Editing by Rob Cox and Thomas Shum)

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