G.F. Gay Le Breton and Liam Norton, Chaffe & Associates Inc.

https://bit.ly/Chaffe-CB-Dec24

For the second year in a row, Louisiana merger and acquisition activity declined.  The state saw 171 transactions involving a Louisiana target, buyer, or seller announced or closed in 2024.  This is an 8.6% decrease from 2023, when Louisiana had 187 transactions, and a 17.8% decrease from 2022, when the state showed 208 deals.

Louisiana’s 2024 performance flew in the face of the broader US market, which showed an estimated 7% rise over 2023 levels for deals over $30 million in value, according to Dealogic.

Starting in 2022 and continuing through 2024, the increased cost of capital significantly curtailed M&A activity, and contributed to a valuation gap between buyers and sellers that emerged with the Federal Reserve’s aggressive rate increases to curb inflation. Uncertainty over the US election and geopolitical instability also contributed to 2024 results.  

More robust economic activity, the Fed’s rate cuts beginning in September 2024 and other underlying deal drivers are expected to provide momentum for M&A activity going into 2025.

Louisiana saw only two transactions in 2024 with deal values exceeding $1 billion, both by Bernhard Capital Partners, and only 29 deals with stated values.  The pricing and terms of most Louisiana deals are not disclosed. 

In February 2024, Bernhard Capital-backed Delta Utilities agreed to acquire the Louisiana and Mississippi natural gas assets of CenterPoint Energy for $1.2 billion, a 32x multiple on the assets’ Local Distribution (LDC) earnings. Assets include approximately 12,000 miles of pipeline serving roughly 380,000 metered customers, according to CenterPoint.

Bernhard Capital established Delta Utilities in 2023 as a regulated natural gas utility with a core focus on safe, dependable natural gas distribution.  It announced an agreement to acquire Entergy’s natural gas distribution operations in New Orleans and Baton Rouge, Louisiana in October 2023.  Both transactions are expected to close in 2025.

Continuing their focus on infrastructure assets and utilities, in August 2024, Bernhard Capital announced a deal to acquire New Mexico Gas Company, Inc. from Emera Inc., a Canadian energy and services company. The deal was struck at a value of $1.25 billion, which included the assumption of roughly half a billion dollars in debt. The New Mexico utility oversees over 12,000 miles of transmission and distribution pipeline and serves over 540,000 customers. The target company is the state’s largest public natural gas utility, and the transaction is subject to approval by the New Mexico Public Regulation Commission.

The US M&A market shows promising signs for 2025, a stable economy marked by solid growth, easing inflation and ongoing monetary easing. Lower interest rates are expected to improve conditions in financing markets, and reduced cost of debt to drive better company valuations.  Nationally, M&A activity is expected to rise 10% in 2025, according to EY-Parthenon Macroeconomic outlook.

Both corporations and private equity have substantial uncommitted capital to deploy.  PE has a pent-up demand for both acquisitions and portfolio company sales delayed by subdued activity over the past two years. Reduced economic uncertainty post US elections and loosening of regulatory restrictions under the Trump administrations are also expected to be deal drivers.

Headwinds to the 2025 M&A market may be the impact of new trade policies under the Trump administration, and changes to existing industrial policies, such as the Inflation Reduction Act.  Sellers will still have to justify valuations in negotiating deals.