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THE 2005 ENERGY ROUNDTABLE. Domestic and International Energy Acquisitions that Create Value. Introduction. Organizations developing energy companies through M&A need to heed the high failure rates.

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the 2005 energy roundtable


Domestic and International Energy Acquisitions that Create Value

  • Organizations developing energy companies through M&A need to heed the high failure rates
  • M&A deals in the energy sector have experienced high failure rates, particularly the international deals
  • The performance profile of which deals are succeeding and which are not is unique to the energy sector
  • There are important lessons to extract from past energy M&A activity to better ensure successful deals going forward
energy deals
Energy Deals

Like industry in general, less than half major deals create shareholder value in excess of their respective industry index

Source: SECOR M&A Database updated using Bloomberg

highest failure rates
Highest Failure Rates
  • The highest failure rates in the energy sector have occurred in related diversification and international deals

Source: SECOR M&A Database updated using Bloomberg

north american international deals
North American International Deals
  • The poor performance of North American led international deals is common to other sectors


  • NA acquirers tend to be more aggressive on price and less effective in execution
  • Most European acquirers have more international deal experience and manage culture issues more effectively

Source: SECOR M&A Database updated using Bloomberg, Dealogic, Bloomberg, Hoovers

related diversification
Related Diversification
  • Normally related diversification deals have higher success rates and better returns than consolidation, but not so in the energy sector


  • In general, high acquisition premiums more than off-set one-time cost synergies in consolidating industries
  • Revenue synergies in related diversifications are “the gift that keeps on giving”, when real
  • By contrast, premiums in energy consolidation have been more modest
  • Synergies have not materialized in related energy deals

Source: SECOR M&A Database updated using Bloomberg, Dealogic, Bloomberg, Hoovers *Estimate: based on weighted averages of US and Europe mix


Three imperatives determine successful deals

  • 1. Deal Logic
    • Path to long-term
    • strategic value
  • 2. Organization and
  • Culture Alignment
    • Structure, process,
    • Systems and culture
  • 3. Implementation
  • Management
    • Accelerate
    • transition and act on
    • strategic potential
1 deal logic
Customers stand to benefit from combined offer1. Deal Logic
  • Deal makers need to ensure that the logic cross-ocean and cross-sector deals is sound. For example, the multi-utility model has not yet proven itself.

Gas Distributors

Related fin’l products

Natural gas

Water supply


Power Companies

  • Can the synergies be captured for shareholders
2 organisation culture alignment
2. Organisation & Culture Alignment

Integration focus tends to be on organisation structure.

Failures are blamed on strategy execution or corporate culture

Strategy, Structure and Culture

  • Strategy
  • Business strategies
  • Implementation plans
  • Execution

Typical failures

Typical focus

  • Organisational
  • Structure
  • Reporting relationships
  • Roles
  • Competencies
  • Organisation
  • Culture
  • Values
  • Work rituals
  • Leadership
  • Organisational Structure
  • Reporting relationships
  • Roles
  • Competencies
3. In execution, the challenge is to sustain the focus
  • In international and cross-sector deals, much of the potential value has not been addressed.

Risks of Delay

Benefits of Early Action

Typical Post-AcquisitionImplementation Results(% of proposed value)

  • Time value of financial results
  • Expectation of change, need for direction
  • Time value of enthusiasm for identified synergies

Actions taken; synergies realized

Actions atrophied; Potential value ignored / forgotten

Actions ill-conceived, failed or deliberately abandoned

  • As the industry continues to restructure, companies need to improve the performance for shareholders
  • Those participating in in-market consolidation need to take care not to pay for all the synergy potential in advance
  • Those building multi-business or multinational companies need to reconfirm the logic of these deals. Will these strategies create shareholder value? From where specifically will the value be derived?
  • There must be a clear link between the deal logic, the action plan and the post deal change program
  • Organisations must be self-critical: If they lack the experience, skills or track record of successful deal execution, they need to get help