Early 2023 has been a rough time for deals. In our 2023 Deals Yearbook, for instance, citing Dealogic, we noted a decline in both the volume and value of deals. Q1 2023 saw just 601 deals totaling $19.6bn in the UK, while globally there were 9,400 deals worth a little under $591bn. This marks the lowest UK Q1 since 2009, and the lowest global Q1 since 2012.
Recent weeks, though, have seen an uptick in multibillion-dollar activity. And, while it is certainly too early to declare that we are out of the woods, the mood among corporate lawyers has lifted: more ‘cautious optimism’ than ‘doom and gloom’.
In a transaction billed by many as a ‘market maker’, the NEOM Green Hydrogen Company (NGHC) in Saudi Arabia achieved financial close on its green hydrogen production facility, with a total investment value of $8.4bn, as well as a $6.7bn engineering, procurement, and construction (EPC) deal with Air Products.
King & Spalding advised NEOM, with a team including partners Brendan Hundt, who joined the firm from Shearman & Sterling in March; Nikhil Markanday (London); and Zoe Bromage (Singapore). The team was led by Dan Feldman, who also joined from Shearman in January this year.
Allen & Overy advised 23 lenders on the transaction, and its role included negotiating what the firm’s press release described as ‘the world’s first project financed large scale green ammonia offtake contract’. The team was led by Michael Diosi (London), Ian Ingram-Johnson (Dubai), and Zue Wang (Tokyo), and included a wealth of partners from offices in London, Dubai, Tokyo, Madrid, Frankfurt, Abu Dhabi, and Los Angeles.
White & Case advised NGHC, in conjunction with The Law Office of Megren M. Al-Shaalan, with a team led by Carina Radford in London and Din Eshanov and Alec Johnson in Riyadh, and comprised of partners from London, Riyadh, Cairo, Abu Dhabi, and Hong Kong.
Air Products, meanwhile, instructed a team from Baker Botts led by London projects partner Stuart Jordan to handle the JV, offtake, and EPC contracts.
Covington also played a role, advising ACWA Power on EPC, hydrogen offtake, and green hydrogen regulatory issues. London projects partners Agnieszka Klich and Ursula Owczarkowski led on the deal.
Feldman said: ‘The project is extremely important for, not just green hydrogen, but the energy transition more broadly. It’s the first export of green fuels at this scale in history. It’s the first demonstration, at commercial scale, of taking excess renewables, converting them into a medium that can be transported and sold intercontinentally, and exporting renewable energy from one country, one continent, to another.
‘Because it’s impossible for some countries to use renewable energy at the scale at which they need to if they’re going to meet energy transition goals, it’s essential that they be able to import green energy.
‘To be the first project to do that is significant, because it proves to lenders that there’s a market for this product. It proves that we can overcome the regulatory hurdles involved. It proves that the technology is out there and is bankable. And now that it’s all signed off, it can support the next wave of projects.’
The project comes at a time when state support for green hydrogen is at a higher level than ever before. ‘One of the things we’re seeing play out,’ added Diosi, ‘is the market getting its head around the significance of the Inflation Reduction Act, which is having a very big impact on appetite for investment. A lot of emerging market geographies are very attractive for ammonia and green fuels right now – albeit with an eye to the US subsidy regime and potential regimes in the EU and elsewhere.’
Radford echoed this. ‘It’s already having an impact on the market – we’re already talking to clients in places like India and Canada about developing similar projects.’ Indeed, Feldman is already advising on Canadian project EverWind – what he calls ‘the first mega-project to be fully environmentally permitted out of North America’, which aims to export green hydrogen on a mass scale from Canada to Germany.
This activity will be seen as a positive sign for firms investing in the energy sector, including Clifford Chance, which just announced the opening of a new office in Houston, with ten partners, including Jonathan Castelan and Trevor Lavelle from Latham & Watkins.
The imperative of the green transition also loomed large over Emerson Electric’s sale of a 55% stake in its Climate Technologies business to private equity funds managed by Blackstone, in a transaction that valued Climate Technologies, which now operates as a standalone business named Copeland, at $14bn.
Simpson Thacher advised the Blackstone consortium on the deal, with a team led by M&A partners Elizabeth Cooper and William Allen, banking and credit partners Brian Gluck and Adam Moss, capital markets partner Jonathan Ozner, executive compensation and employee benefits partner Greg Grogan, and tax partner Sophie Staples.
Emerson, meanwhile, was advised by Davis Polk. The corporate team included Phillip Mills, Marc Williams, Brian Wolfe, and Cheryl Chan. Michael Mollerus and Corey Goodman led on tax advice, Travis Triano provided executive compensation advice, and Frank Azzopardi led the intellectual property and technology transactions team, while Ronan Harty provided antitrust and competition advice.
Baker McKenzie acted as international counsel, with global M&A chair Jannan Crozier leading a team from more than 60 offices.
Climate Technologies is a world leader in technology used for residential and commercial heating and cooling. And, for Crozier, Blackstone’s interest in it is indicative of a shift in the wider deals landscape.
‘If you look at the deals that are attracting the private equity houses, there is an increased focus on, “is this business capable of being a sustainable player?” There’s a lot of activity right now in what would have historically been the industrial and manufacturing space. Those clients are really looking to develop technology that allows them to operate in a sustainable way. Pressure is coming from all sides. Consumers care more about sustainability, so they’re looking to companies to do more. Governments are increasing regulation. And boards themselves are concerned, ever more, that their decisions have a good focus on sustainability.’
This pressure also raises the incentives for businesses to find what Crozier described as ‘creative structures’ for M&A deals.
‘What’s clear is that carveouts are not a trend. They are a more complex way of delivering and preserving value in M&A, and they’re here to stay.’
Elsewhere in private equity, a consortium led by Swedish fund EQT reached a deal to acquire veterinary pharmaceuticals company Dechra for a total of £4.5bn. EQT lowered its offer from 4,070p per share to 3,875 after Dechra issued a profit warning in May. But the price still represents a 44% premium on Dechra’s closing share price on 12 April, the last date before knowledge of EQT’s interest became public.
Firms were reluctant to comment on the deal, and with shareholder support and regulatory approval still to come, this is perhaps unsurprising. The Competition and Markets Authority in particular may present a hurdle, given EQT already has substantial holdings in the sector, including owning UK vet clinic chain IVC Evidensia.
Still, if it is allowed go ahead, the deal will be the largest UK private equity transaction so far this year. It may also signal increased activity: lawyers active in the space have reported that private capital is increasingly keen to invest in UK companies, which are seen as undervalued, at least relative to their US counterparts.
Kirkland advised the EQT consortium on the deal. Corporate partners Roger Johnson, Dipak Bhundia, Francesca Haris, and Adrian Duncan led the team. Antitrust partners Sally Evans and Athina Van Melkebeke were also involved, as well as technology and IP transactions partner John Patten and tax partner Timothy Lowe.
DLA Piper advised Dechra, led by corporate partners Charles Cook ad Jon Earle, with litigation and regulatory partner Sara Smith and employment partner Nick Hipwell.
Freshfields Bruckhaus Deringer advised ADIA subsidiary Luxinva, which acted as a co-investor with EQT. The team was led by MENA regional managing partner Michael Hilton in Abu Dhabi and Stephen Hewes in London, while Rafique Bachour in Brussels provided antitrust advice, and Peter Clements in London advised on tax.
Morgan Stanley and Merrill Lynch acted as joint financial advisers to EQT and Luxinva, and were advised by a team from Ashurst led by Karen Davies, Tim Rennie, and Harry Thimont.