PwC Turkey: The Momentum of Mergers and Acquisitions in Turkey's Energy Sector Continues to Decline in 2024
PwC Turkey has published the 17th edition of its Energy Sector Mergers and Acquisitions Report, which includes a comprehensive analysis of mergers and acquisitions in Turkey's energy sector, as well as the most recent industry trends.
According to the report, key issues affecting global mergers and acquisitions in 2024 include the protectionist trade policies that have emerged alongside the results of the U.S. elections, political stability concerns in major EU countries, ongoing wars in Ukraine and the Middle East, humanitarian crises, pressures on the global supply chain, the increasing penetration of artificial intelligence across nearly all sectors and the uncertainties related to its implications, cost of living challenges, continuing issues in project financing, the climate crisis, insufficient progress in implementing COP commitments, and the overarching challenge of the global energy transition falling behind expectations.
In this context, 2024 witnessed a cautious recovery in global mergers and acquisitions compared to the lowest performance recorded in the last decade in 2023. A relative easing of financing conditions played a significant role in this performance.
A similar pattern was observed in global energy sector mergers and acquisitions, with the need to diversify portfolios and seek synergies cited as the primary reasons for asset transfers, particularly in the oil and gas sector. Meanwhile, in the renewable energy segment, investors focused on converting their assets into cash due to high construction costs and ongoing financing issues, with public natural gas infrastructure companies being noted for selling off non-core assets to finance operations in their main areas of activity.
A sharp decline was observed in mergers and acquisitions in Turkey's energy market. Contrary to the global recovery trend, Turkey faced a steep decline in 2024 following the momentum loss in 2023, with the total estimated value of 30 disclosed mergers and acquisitions dropping by 44% to $1 billion, compared to $1.8 billion reached in 2023. The average deal value also decreased by 47%, resulting in an average of $33 million.
The report cited macroeconomic uncertainties, the scarcity of high-value and attractive acquisition opportunities in nearly all segments, ongoing financing difficulties, the increasing preference for initial public offerings (IPOs) as a means of financing, and the growing number of industrial companies investing in their own energy production facilities as reasons for this weak performance.
In addition, contrary to the intense foreign investor interest seen in 2023, all transactions in 2024 were conducted among domestic players.
In transactions within the energy infrastructure sector, sales in the natural gas distribution market topped the list. The report noted that Turkey's total electricity consumption increased by 5% from January to November 2024 compared to the previous year, with total production capacity reaching 115 GW, a growth of 7%. It also highlighted that in 2024, inflationary pressures led to increases in regulated electricity tariffs ranging from 20% to 38% for residential, commercial, and industrial customers.
In previous years, the estimated total value of mergers and acquisitions in the renewable energy market outperformed other segments; however, in 2024, leadership shifted to the natural gas distribution segment. In six transactions within this segment, some companies that were transferred to a trustee due to debts to BOTAŞ and serious customer service issues changed hands, while the remaining sales were attributed to changes in strategic priorities.
The remaining sales involved 21 renewable energy companies (including wind, solar, hydroelectric, landfill gas, and biogas plants) and one waste management company.
The oil sector experienced a stagnant year. Following high-value sales in the fuel distribution segment in 2023, only two transactions were reported in oil exploration & production and fuel distribution in 2024, both of which did not disclose transaction values.
A cautious approach continues. Engin Alioğlu, the Leader of Company Mergers and Acquisitions at PwC Turkey, commented on the report: “The findings of our 17th study underscore that steps to enhance investment appeal in Turkey’s energy market should be a priority for policymakers.”
“We are witnessing significant changes in the investor profile, especially in the renewable energy market. The days when everyone with a ‘vision’ rushed into this sector are behind us. In this maturation phase marked by better-planned strategies, mergers and acquisitions are taking place not so much to enter the sector, but rather to grow existing portfolios.”
“We maintain our belief in the potential of the Turkish energy market and that this potential can be realized through appropriate policies and strategic partnerships. To ensure that our country receives its rightful share from the recovery environment in global mergers and acquisitions, it is essential to provide investors with a reliable macroeconomic environment, especially by eliminating uncertainties in market regulations and financing and by identifying new attractive points.”
The report also outlined factors that could influence mergers and acquisitions in 2025 and beyond:
Macroeconomic developments: The results of macroeconomic policies that have seen significant positive changes since 2023 have yet to fully reflect in the energy market, and time is still needed to observe the potential impacts of interest rate cuts on financing and a general recovery in transactions.
Energy Transition - Renewable Energy 2035 Plan: Under the roadmap announced by the Ministry of Energy and Natural Resources in 2024, new capacity targets and regulations to facilitate these investments could make the companies executing these projects attractive targets for mergers and acquisitions.
HIT-30 Incentive Program: Green energy and mobility technology companies benefiting from incentives under the program announced by the Ministry of Industry and Technology are also expected to become merger and acquisition targets.
Initial Public Offerings (IPOs): In the electricity production market, IPOs have emerged as an alternative financing method for asset sales and are anticipated to continue in 2025.
Changes in the Last Resort Supply Tariff (SKTT) regulation: According to the EPDK decision dated November 7, 2024, starting from February 1, 2024, households with annual electricity consumption over 5,000 kWh and industrial and commercial subscribers with annual consumption exceeding 15,000 kWh will have their bills regulated through SKTT. In other words, while these subscribers will gain the option to choose their suppliers, they will also be removed from the cheap tariff coverage. As developing supplier selection awareness among residential subscribers will take time, this regulation is expected to positively impact the finances of electricity retail companies currently selling to these subscribers. Smaller competitor supply companies will gain the opportunity to expand their portfolios with new industrial and commercial subscribers. In this context, all companies supplying electricity could become merger and acquisition targets. Additionally, the market is expected to become attractive for providers of rooftop solar energy systems, energy efficiency, and digital energy management systems.
Continued restructuring in the fuel distribution market: Following stagnation in 2024, some acquisition transactions are expected to be announced in 2025. It is anticipated that potential buyer interest will be particularly focused on medium-sized companies facing financing difficulties, as the largest ten among a total of 36 players control more than 70% of the market.
Privatizations: According to information from the Privatization Administration's website, there are currently 13 hydroelectric power plants and one coal plant planned for privatization.