The global tariff war is sending shockwaves through the energy sector’s mergers and acquisitions (M&A) landscape, forcing investors to tightrope-walk through a maze of trade policies, supply chain disruptions, and geopolitical tensions. This environment, while fraught with challenges, is also ripe with opportunities for those agile enough to navigate it.
The uncertainty has led to a cautious approach in M&A activities. According to Datasite, an M&A platform that facilitates around 19,000 new deals annually, new energy deal kickoffs remained flat in the first four months of this year compared to the previous year. However, hold rates increased by two percentage points, and deal closure rates jumped by nine percentage points. This trend mirrors global activity, where new deal kickoffs on Datasite rose 4% year-over-year (YoY) during the same period. But the impact of tariffs is undeniable. Global deal starts on Datasite dropped by 15% YoY in April, following an 11% surge in the first quarter. This drop coincided with the first major U.S. tariff announcement on April 2, causing deal completion odds to decline to 44%, down from 49% YoY.
The oil and gas sector is feeling the pinch. Many deals have been pulled back or put on hold as global buyers conduct more thorough due diligence. Virtual data rooms, where buyers interrogate deal information using question and answer tools, have become increasingly common. Tariff risk analysis is now a critical component of every valuation model. This shift is not just about caution; it’s about survival in an increasingly unpredictable market.
Yet, amidst this turmoil, there are counterbalancing factors driving deal activity. Technological innovation, cost reductions, and rising demand for zero-carbon solutions are creating opportunities. For instance, the demand for energy by data centers, especially those powering artificial intelligence, is projected to grow by 10% to 15% annually through 2030. According to the International Energy Agency (IEA), global electricity demand from data centers, cryptocurrencies, and AI could more than double by 2026, reaching over 1,000 terawatt-hours (TWh) annually. This growth is prompting renewed interest in nuclear power, but geopolitical tensions and trade restrictions on critical materials could slow progress.
Navigating this unpredictability requires vigilance. Policy changes can accelerate or delay deal timelines, and preparation is key. Anticipating increased levels of review and longer review processes is crucial. Leveraging technology, particularly AI, can expedite the due diligence process and enhance efficiency. Currently, one in five dealmakers employs generative AI in the M&A process, and many rank AI adoption as their top operational priority this year.
To thrive, dealmakers must strengthen their due diligence processes, strategically use AI, anticipate regulatory scrutiny, and stay ahead of geopolitical shifts. Proactive strategies, including prioritizing deal readiness and leveraging technology to mitigate risks, will be essential. The global tariff war has underscored the importance of adaptability and innovation. By embracing proactive strategies and leveraging technological advancements, dealmakers can navigate the complexities of the current trade environment and capitalize on emerging opportunities. The key to success lies in preparation, vigilance, and the strategic use of AI to enhance efficiency and accuracy in the M&A process.