Shaw & Co, the specialist corporate finance advisory firm, has launched the fifth in a series of 12 in-depth sector reports that offer an industry’s SME business leaders a powerful benchmarking tool to aid their decision making. 

The fifth report covers the Energy and Natural Resources sector (E&NR) marketplace and segments nearly 900 businesses with earnings in excess of £1m by size and subsector to track their performance, profitability, debt levels and M&A activity.

The report’s key findings include:

• Geopolitical and economic tremors in global gas/energy prices, together with the UK’s regulatory price caps, have seen 20 energy companies outside of our sample fail in 2021. The fragility of the Energy & Utilities subsector suggested by the numbers shows larger companies' viability also remains in question. 
• The relatively fragmented nature of the Waste Management sector - populated by smaller operators - indicates opportunities for consolidation, especially in light of the technology investment required to achieve efficient resource recovery and environmental compliance with net zero targets. 
• The cyclical earnings trough in the Oil & Gas subsector is making for uncomfortable leverage numbers, especially as the recent bank HQ protests and political pressure to reduce fossil fuel financing will only increase. 
• Mergers & Acquisitions: The M&A market remains highly buoyant in line with the rest of the UK which has seen deal volumes rise by nearly 60% across all sectors in 2021 compared to last year.

“The numbers for the UK Energy and Utilities subsector show a reasonable sales and margin performance."

Alexei Garan
Head of Debt Advisory, Shaw & Co

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Alexei Garan, Head of Debt Advisory, Shaw & Co, and editor of the report said: “The numbers for the UK Energy and Utilities subsector show a reasonable sales and margin performance. However, there have been large number of bankruptcies in the subsector and, thanks to continued volatility in global energy prices, yet more companies are likely to falter.

“That some of the largest companies in the sector are focused on renewable energy or sustainable resource recovery is encouraging, but these are still too few in number which highlights the huge task faced by the UK in fully transitioning to a more sustainable economy. 

“In terms of borrowing, despite the commodity market driven cyclical trough in earnings within the Energy and Oil & Gas sectors, high leverage levels in these segments are uncomfortable for the lenders. This is exacerbated by the political and public pressure on the lenders to the sector to cut support for fossil fuels, which is only set to increase.   

“Finally, with regards to M&A activity, the market is highly buoyant, but it is the general fragility of smaller companies in the sector, resulting from high levels of debt, that presents opportunities for even higher levels of M&A activity.”

A full copy of the report is available for free download here.

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