Oil Mergers And Acquisitions – A strategic Forward Move.

With an increasing focus on how to address climate change, many multinationals are moving quickly to support the initiative and refocus their strategies incorporate climate. Apart from the changed climate norms, there has been a series of peak and troughs in price in oil sector all through the last decade.

Coupled with turbulence, squeezing margins, climate change, more and more oil companies are moving towards mergers and acquisitions using both debt and equity to fund such transactions.

There is a major development especially in the oil sector wherein corp-orates and multinationals are supporting emission reductions through renewable energy. The conventional oil companies are going in for merger and acquisition (M&A) with companies belonging to renewable energy sector. While this is a heterogeneous (M&A), where there is no operating synergy but more of financial synergy, green premium and risk diversification.

Major oil companies are investing in renewable energy like wind and solar projects. Renewable energy funding sources raised as equity and debt, such as green bonds and project bonds, are enabling investors to tap into larger financing pools, especially for refinancing of assets and funding investments in small projects such as energy efficiency and distributed generation.

As seen historically, acquisitions are generally financed by cash. However, interns of leverage, firms with unused debt capacity will be more likely to engage in M&A activity using debt as a preferred option. The reason is that debt imposes certain degree of discipline on managers. Those who have to make interest payments would be more careful when accepting projects with low or negative net present values.

Commercial banks and financial institutions deploy both the technical project development and the appropriate finance products for renewable energy funding in mergers and acquisitions. These investment mechanisms have a combination of both project development, technical assessment of energy efficiency financing projects and financial cash flows from such project finance.