We have gotten in touch with expert Dr. Zeynep Çakmak, who shares all you need to know when corporations dedicated to the energy sector decide to merge or acquire another company.
When do you think energy companies are suitable/ ready to merge with another?
Mergers of energy companies take place not only when the energy sector is high and very profitable, but also at distressed times. Adverse market conditions usually encourage or create opportunities for mergers and acquisitions. We have seen major local merging with international players to take a bigger share in the energy sector by combining their forces when the trade is strong. We also see mergers and acquisitions to consolidate strengths and also to purchase companies who suffer from distressed sector conditions at advantageous purchase prices. In distressed times, there are usually more opportunities to buy projects at development or early operation stages, usually by acquiring the shares of the project company.
Anti-trust rules set out in the energy market regulations must be taken into consideration, as well as general competition law regulations governing mergers and acquisitions.
What checks must be performed beforehand, to ensure the merge concludes well, for both your client and the other party involved?
The most important check is always the assessment on the feasibility of the merger project, but it is not always easy, as it is very much dependent on market conditions. Therefore, the market conditions both from a local and international perspective are critical and need to be carefully studied, particularly from the perspective of regulatory risks and future projections. Lastly, the legal and financial due diligence on the company and the business to be acquired or merged, must be made by professionals who have the knowledge in the energy sector, respective markets and assets or projects. Without knowing the specifics and dynamics of the respective markets and assets or projects, it is not possible to make a meaningful analysis on the risks of the business.
Are there any unique challenges which are presented via antitrust or competition laws during a big merger in the energy sector? How do companies work around this?
Anti-trust rules set out in the energy market regulations must be taken into consideration, as well as general competition law regulations governing mergers and acquisitions. In addition to the general competition law requirements, there are certain integration, market share and transfer restrictions unique to the energy markets to take into account both from the point of structural and operational considerations. Those restrictions are critical issues to manage during a merger or acquisition and thereafter. For instance, sometimes where the subject matter asset is subject to an integration, market share or transfer restriction, a prior de-merger or restructuring may be agreed and implemented as a precondition to the concerned merger.
After the merger is complete, what do you recommend each party does to ensure things continue to run smoothly?
The continuation of the flawless management of the merged or acquired companies is critical. Changes in the management teams is a common practice after the merger is completed but I have seen that rushed changes in the key managers and personnel do harm rather than good to the overall performance of the companies. The change, if inevitable, must be made overtime and with utmost consideration taking into account the value of the people bringing to the business.
Av.Dr. Zeynep Çakmak
Partner
www.cakmak.av.tr
Zeynep Cakmak is the Co-Managing Partner of Çakmak Avukatlık Ortaklığı. She has been practicing law for 28 years, concentrating on development, financing and operational matters of infrastructure projects with a particular focus to energy law and administrative law. She has represented several local and multi-national sponsors and banks in many projects, financings, M&A deals and disputes relating to such deals during her practice.
