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Energy services defies M&A gloom

London, 17 May 2012

Through 2011 and 2012, the energy services sector has seen a heightened level of M&A activity, with a number of independent service providers being acquired by large global companies. According to investment bank Robert W. Baird, deal flow in the sector is likely to continue.

Already in the past six months, around 15 transactions have been completed in the energy services space – well above the long-term average. This trend is exemplified by last week’s announced acquisition of M&C Energy Group Ltd. (“M&C”), a Scotland-based leading independent provider of energy procurement, compliance and performance services, by Schneider Electric SA. The business was sold by UK private equity firm Lyceum Capital. 

Other notable energy service deals from 2012 include:

* Siemens acquisition of Pace Global (January)
* MITIE acquisition of Utilyx (January)
* American Electric Power acquisition of BlueStar Energy (March)

“We are seeing increasing levels of M&A activity in the energy services / energy management space,” commented Jonathan Harrison, Managing Director at Baird, which has advised on the M&C transaction. Revenue figures for the energy services market in 2008-2013 show CAGR of 8% in Europe and 16% in North America. Harrison points to two key features that are driving the deal flow:

Relatively immature industry with strong growth prospects
With increased pressure on organizations to contain costs, unpredictable and limited supply, and increased sensitivities about overall consumption, the energy services space is in its early stages. Rapidly changing technologies enable the providers of these services to run their businesses in an increasingly effective and efficient manner. And with seemingly unlimited demand, these providers are able to tap a larger and growing market with a cheaper, more productive business model.

High fragmentation
The energy services space comprises a large number of independent providers, many of which specialize in a particular service and / or geographic region. The potential synergies in consolidating these providers are tremendous. Certain combinations have the potential to create truly global, full-service energy management enterprises.

Harrison says these fundamentals are sparking interest from both corporate and financial buyers: “Corporates in this space continue to look to maximise their energy efficiency and make strategic acquisitions to realise growth ambitions, and private equity firms continue to be attracted to this fast-growing market, which is a highly attractive place to deploy their large amounts of capital.”

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