Mergers and Acquisitions Are Heating Up
And we can build wealth betting on them.
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Better to buy than build: That realization is heating up M&A activity across sectors in the US in mid-2025.
There are already 20 major deals in progress in our energy and utilities coverage universe. Each will meaningfully impact companies’ earnings and investor returns. And more are on the way.
The biggest under discussion now is a possible bid for super oil major BP Plc (London: BP, NYSE: BP), a super major oil company with a market capitalization of nearly $80 billion. And the list of potential suitors reads like a who’s who of global energy.
Rumored exploring bids are US super majors Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM), European super majors Shell (London: SHEL, NYSE: SHEL) and TotalEnergies (Paris: TTE, NYSE: TTE) and giant privately owned energy trader Vitol. In addition, Abu Dhabi’s Adnoc has a close relationship with BP and is expected to show more interest as things progress.
Why is M&A heating up now?
One reason is the new regulatory regime in Washington D.C. has already shown itself less concerned with market power than the previous one. So it’s reasonable that companies in heavily regulated industries are seizing the opportunity to attempt their “dream” deals.
But the underlying driver of ongoing M&A is that the economics of buying look a lot better than building right now.
The biggest deal announced so far in our coverage universe is actually a three-way:
Fiber broadband and pay television company Charter Communications (NSDQ: CHTR) is buying the publicly traded shares of its “parent,” John Malone’s Liberty Broadband (OTC: LBRDK), in what’s effectively called a “reverse merger.” And it’s simultaneously acquiring privately held Cox Communications for a combination of cash, stock and assumed debt.
The resulting company will reach close to 70 million US homes in 46 states starting with it fiber broadband network. But even this deal is not likely to be the last for Charter. The company will still be only able to offer wireless surface on Verizon Communications’ (NYSE: VZ) network through an MVNO agreement.
Could we ultimately see a Charter/Verizon deal?
Verizon craves fiber. And it’s announced big investment plans once it closes the ongoing acquisition of Frontier Communications (NSDQ: FYBR). But the fact it’s paying roughly $10 billion plus assumed debt for another company is also a tacit admission that it’s a lot easier to buy networks than build them.
That’s the same logic driving AT&T Inc’s (NYSE: T) purchase of debt-heavy Lumen Technologies’ (NSDQ: LUMN) fiber network. And “buy before build” is also the clear strategy of the other US Big 3 telecom, T-Mobile US (NSDQ: TMUS).
Deutsche Telekom’s (Germany: DTE, OTC: DTEGY) US unit has purchased its own fiber company. This summer T-Mobile close on number four US wireless provider U.S. Cellular (NYSE: USM), currently majority owned and controlled by TDS (NYSE: TDS).
Buying over building economics is also what makes BP attractive to so many other energy giants. In April 2010, the company’s Macondo well in the GOM suffered an explosion and fire on the Deepwater Horizon rig. Eleven workers died with millions of barrels of oil spilling into the Gulf. And the company paid tens of billions of dollars in restitution over the next decade.
Not surprisingly, that put BP considerably behind its rivals in terms of investment. And it’s arguably lost even more ground in recent years due to wrenching shifts in strategy. That was first to aggressively invest in renewable energy projects management had little experience in while “phasing down” core oil and gas production—and a couple years later to just as aggressively unwind the strategy.
Even a wounded super major like BP is still a prize at the right price. That starts with a balance sheet still more powerful than many if not most sovereign nations, a scaled up operation armed with unmatched expertise and access to technology and a deep global inventory of projects-with LNG exposure especially attractive.
Now with the price of Brent crude oil stuck under $70 a barrel, earnings are slumping and shareholder unrest is growing. So if there’s going to be a bid for BP this is the time. And as all the potential bidders know, there are few places they can invest in new production right now for a bigger and faster return. The cost savings buying BP, for example, don’t depend on what happens with commodity prices.
There may never be a deal. And it’s fair to say the takeover of a super oil would of course be a major, global regulatory event. But the longer Brent crude stays under $70, the more tempting it will be to make an offer, and the more inclined BP will be to accept one.
That includes a possible joint takeover. Shell and TotalEnergies, for example, have just announced a series of ownership swaps that will boost returns at both companies. Might they be inclined to go a little further for the promise of a monster prize?
The appeal of building versus buying would, of course, increase greatly if certain conditions changed.
Almost all electric utility M&A right now, for example, is actually private capital investment. There are two ongoing takeovers of small utilities by Blackrock and Blackstone. But the big dollar deals have been sales of ownership stakes in particular assets, CDPQ’s purchase of 30 percent ownership in AES Corp’s (NYSE: AES) Indiana and Ohio electric utilities for example.
Electric utilities right now a truly generational investment opportunity to invest in power. Data centers, reshoring manufacturing and electrification of buildings, transport and home life are boosting electricity demand at the fastest pace since the 1950s. And with borrowing costs elevated, investment tax credits under threat and stock buybacks still deeply favored over equity issues, taking on a private capital partner is an elegant solution to accessing needed capital while keeping control of assets.
On the other hand, high capital costs and soft oil prices have only reinforced Shale Discipline, and companies’ inclination to share free cash flow with shareholders rather than pump more. And that feeling will only get stronger with the 50 percent tariff on imported steel pushing up the cost of constructing new wells and pipelines.
Economics is clearly on the side of buy versus build. That means more M&A—and opportunity for investors to buy companies most likely to fetch high premium offers in coming months.