It’s always hard to choose the most significant mergers and acquisitions that transpired in any given year. First, there are more than 1,000 individual transactions reported by Texas lawyers each year, so the choices are complicated from the start by simple arithmetic.
Then there is the question of money. Too often we focus on the deals that involved the most expensive price tag, even though large numbers of transactions, particularly those involving private equity investments, go unreported; and even among those transactions that are publicly acknowledged nearly half include terms that are unannounced.
Finally, choices are always more complicated (but surely more interesting) by the fact that things change. And in that 2022 proved no different.
Inflation, coupled with the rise and fall of energy prices, conspired to make this year’s crop of top deals energy-heavy, not unlike the glory years of Texas oil and gas. But if the presence of energy deals seems familiar, the term “energy-heavy” itself has changed. Although the list contains the usual upstream and full-vertical oil & gas acquisitions, many of the deals have been influenced by technology changes or geopolitical upheaval. Increasingly, the demand for energy and investment efficiencies are changing some of the market’s most fundamental trends.
But aside from those energy deals, the list also includes transactions involving digital infrastructure, biologics, energy management, chip manufacturing and, of course, a SPAC. Some of the deals were chosen because of what they represent about changes in the Texas market. Not all of them had a price tag attached. But each is explained in chronological order, tracking an extraordinary year of challenge and change.
Jan. 25: Chesapeake picking up Chief for $2.65B
Chesapeake has come a long way since heading to bankruptcy court in June of 2020, emerging just last year with a focus on natural gas rather than crude oil. The strategy has paid off, so much so that it was able to buy Chief E&D Holdings and associated non-operated interests held by Tug Hill Inc. this past January for $2.65 billion.
Nick Pope, an analyst at Seaport Research Partners, believes Chesapeake’s path of further concentrating assets in three core locations – Haynesville, Marcellus and Eagle Ford – is the right step.
“The company has been fairly acquisitive in the past year, as it has improved its balance sheet and gas pricing has improved,” he said. “We think the company has a lot to show in 2022 from an operational standpoint that it can manage the return to a more active operational program and a larger footprint than it has seen in the past few years.”
Three law firms in Texas — Gibson Dunn & Crutcher, Akin Gump Strauss Hauer & Feld and Shearman & Sterling — advised on the deal.
Gibson Dunn counseled Chief led by partners Mike Darden and Jeff Chapman. Akin Gump advised Tug Hill and affiliates led by corporate partners Wes Williams and Cole Bredthauer. And Shearman & Sterling assisted Chesapeake led by partners Jeremy Kennedy (now at Haynes and Boone) and Todd Lowther.
Feb. 18: Celanese’s $11 billion purchase of most of the M&M unit of DuPont
Dallas-based chemical company Celanese Corp. must have coveted DuPont’s mobility and materials business, known as “M&M.” They were direct competitors, but M&M has more Asia exposure. So Celanese bit the bullet, acquiring DuPont’s unit for $11 billion.
The main risks to the deal, according to TPH analyst Matthew Blair, are synergy capture and increased debt. The transaction closed Nov. 1.
The M&M unit — representing around $3.5 billion of net sales and $800 million in operating EBITDA last year — is a top global producer of engineering thermoplastics and elastomers supplying the automotive, electrical and electronics, consumer goods and industrial industries, Celanese said, including global leadership positions in nylons, polyesters and elastomers.
Celanese’s in-house counsel included Lynne Puckett, general counsel, assisted by Adam Shulman and Mike Sullivan, deputy counsel; John King, associate counsel; Rebecca Stark, chief counsel; and Adam Santosuosso, deputy counsel. The company had help from Kirkland & Ellis including a team led out of New York that included corporate partner Emily Lichtenheld in Austin.
Gibson Dunn & Crutcher provided financing counsel with a group that included partner Doug Rayburn in Dallas and associate Zain Hassan in Houston. Stephanie Gase, partner at Leader & Berkon in Dallas, advised Celanese on environmental issues. Baker Botts attorneys also assisted from Brussels. Skadden, Arps, Slate, Meagher & Flom counseled DuPont led by a team out of Washington, D.C., with no attorneys in Texas.
May 11: DigitalBridge, IFM acquire Switch in a $11 billion take-private deal
Data center deals are flying. Last year saw large deals for CoreSite Reality (by American Tower), CyrusOne (by KKR/GIP) and QTS (by Blackstone).
This year, DigitalBridge Group Inc. and IFM Investors jumped in, announcing that they were acquiring Las Vegas-based Switch Inc. for $34.25 per share in an all-cash transaction valued at about $11 billion, including the assumption of debt. The deal closed Dec. 6.
Fueling the deal was California’s power grid, which is compromised in some places, according to DigitalBridge CEO Marc Ganzi. Switch has more than 1.5 gigawatts of power capacity that they draw from three different sources of green energy.
“In a market like Reno where they have land, they have renewable power and they control their destiny, they can light up almost 800 megawatts of capacity that’s less than 0.2 milliseconds from Santa Clara,” Ganzi said on a conference call with analysts. “So we’re really excited about the prospects for Switch.”
Attorneys in Texas were involved on this one. Simpson Thacher & Bartlett counseled DigitalBridge and IFM with a team led by Houston partners David Lieberman and Chris May. Latham & Watkins advised Switch with Orange County attorneys.
June 14: Harold Hamm’s $25 billion take-private of Continental Resources
Oklahoma oil tycoon Harold Hamm has always been outspoken about his views on the industry, including complaints that federal regulations are holding the sector back. So it was not at all surprising that he offered to take his company Continental Resources private in a deal that valued the company at $25 billion, allowing him to conduct business his own way.
“We have determined that the opportunity today is with private companies who have the freedom to operate and aren’t limited by public markets, similar to the way that we operated approximately 15 years ago,” he said at the time of his offer.
Despite what analysts deemed a reasonable price, Hamm sweetened his bid from $70 to $74.28 a share for 58 million shares of Continental’s stock, or around $4.3 billion (he and his family own about 83 percent). The deal was finalized Nov. 22 and was expected to be financed using the company’s cash on hand, borrowings under its existing revolver and a new term loan facility (to consummate the agreement, Hamm had to make an initial payment of $274 million).
Vinson & Elkins advised Hamm led by partners David Oelman, Mike Telle and Steve Gill. Intrepid Partners, which advised Hamm on the deal, was counseled by a Gibson Dunn team led by Hillary Holmes and Tull Florey. Evercore, which was advising the special committee, was advised by Sidley partner Mark Metts and senior managing associate Kayleigh McNelis.
August 12: Bluescape Clean Fuels inks merger with CENAQ Energy Corp.
In August, Bluescape Clean Fuels merged with CENAQ, a Houston-based blank check company, to form a new company to be publicly traded as Verde Clean Fuels. It was a $500 million deal that represented the intersection of two M&A categories that trended in distinctly different directions during 2022: energy transition transactions and special purpose acquisition companies, or SPACs.
Bluescape specializes in the production of gasoline from renewable feedstocks. It’s a drop-in fuel developed by the company, which was formed in 2007. CENAQ is a Houston-based blank check company: a SPAC. The deal was advised by Texas lawyers from Vinson & Elkins, Kirkland & Ellis and Baker Botts.
In the third quarter of 2022, and for the first time since The Texas Lawbook has been tracking M&A transactions, Texas-related deals involving renewables or energy transition outnumbered traditional energy transactions. Old school energy deals still outweighed their alternative counterparts in value — by far. But in their sheer number deals involving wind farms, solar panels, utility-grade energy shortage and smart energy allocation made their mark on the Texas market in 2022.
On the flip side, SPACs, all the rage in 2021 dealmaking, lost their luster in 2022. According to SPAC Insider, there were 613 SPACs that made their initial public offering in 2021. In 2022, the number dropped to 84, an 86 percent decline. More importantly, proceeds from those IPOs declined from $162 billion to $13.2 billion, a 92 percent decline in public investment.
While the SPAC track may have lost some of its glitter, alternative energy deals continue to rise in number and value. And the third quarter of M&A in Texas may have marked a bigger change in the mix of Texas energy deals than we know.
August 23: Joint venture brings chips home
Although it wasn’t exactly a merger, an acquisition or even a Texas-based deal, the joint venture announced in August between Brookfield Infrastructure and chipmaker Intel was deemed one of the most important in recent years, particularly in the C-suites of Texas tech companies.
Brookfield and Intel not only committed $30 billion to build a massive chip production facility in Arizona, they did so by creating a structure that allows both companies to share production-based revenues. Under what both companies deemed a “first-of-its-kind” co-investment, Intel will share with Brookfield both costs of production and revenues on a 51-to-49 percent basis, with Intel in control.
In recent years, deliveries from overseas chip production facilities have languished, particularly from Asia, where rigid Covid protocols and shortages of raw materials — as well as geopolitical tensions — have constricted global chip supply lines in the face of increased demand driven by smart homes, smart cars and smarter devices. And for Texas-based tech manufacturers, the repatriation of chip production to the U.S. could mean more dependable and more flexible manufacturing cycles.
Intel’s end of the deal was advised from Washington D.C. by Skadden, Arps, Slate, Meagher & Flom. Brookfield was advised from Houston by a Kirkland & Ellis team led by Andrew Calder and Doug Bacon.
Sept. 6: EQT’s $5.2 billion purchase of Quantum-backed Tug Hill and XcL Midstream
EQT, the largest natural gas producer in the U.S, went after a big prize: the $5.2 billion purchase of Tug Hill and XcL Midstream, both backed by Quantum Energy Partners.
“[It was the] biggest gas deal in five years and the largest private equity exit of the year,” says Andrew Dittmar, a director and M&A analyst at energy data provider Enverus.
Publicly traded EQT was the most logical buyer, with operations right next door and the financial wherewithal to pay for it, half with cash and half with stock.
There may be trouble on the horizon: Earlier this month, EQT revealed in a filing with the Securities & Exchange Commission that the Federal Trade Commission wants more details about the purchase. Either the buyer or the sellers may terminate the deal if the acquisition has not closed by Dec. 30, although the two noted they discussed extending of the transaction’s outside date.
Kirkland & Ellis advised EQT led in part by Houston partner Cyril Jones, who also counseled the company on its $735 million acquisition of Chevron USA’s upstream and midstream assets in the Appalachian Basin in 2020.
Vinson & Ellis counseled Tug Hill and XcL, led by Houston partners John Connally and Robert Hughes (as it happens, EQT General Counsel Will Jordan in Houston was an attorney at V&E until 2014). Akin Gump also assisted Tug Hill, led by Dallas partner Wes Williams.
Sept. 22: M6 Midstream buys Align Midstream II
When Dallas-based Tailwater Capital announced the sale of Align Midstream II for an undisclosed sum, it was doing so in a dramatically different market than what existed when it first formed Align II five years before. Through Align II, Tailwater consolidated its assets in the Haynesville Shale into a gas gathering and processing system that, among other things, further connected the East Texas field with natural gas terminals on the Texas Gulf Coast.
During 2022, that kind of access to natural gas supplies for plants on and near the Texas coast vaulted the U.S. into the world’s top exporter of LNG, according to the U.S. Energy Information Agency. The U.S. only began exporting LNG from the lower 48 states in February 2016, and by July 2022 LNG exports averaged 11.1 billion cubic feet per day, the agency said. After disruptions in gas supplies provoked by the Russian invasion of Ukraine, the U.S. exported about 146 billion cubic feet per day to Europe during June alone.
Tailwater’s sale of Align II to M6 Midstream is on this list because Texas has become a vital part the transformation of the U.S. from a net importer of LNG to a net exporter, a trend which will only accelerated with regulatory approval of three major LNG terminal projects for construction in Texas or nearby Louisiana, all of which will be supplied in great measure from gas fields in the Lone Star State.
M6 was advised by Vinson & Elkins on the deal, led by partners Danielle Patterson and Doug Bland. Locke Lord advised Tailwater, led by Greg Heath, Matthew McKenna and Case Towslee.
Nov. 30: Corteva acquires Stoller Group
With a price tag of only $1.2 billion, the sale of Houston’s Stoller Group last month wasn’t one of the year’s largest deals in Texas. But as one of the largest hitherto independent biochemical companies in agriculture, the deal had global significance. Indianapolis-based Corteva announced the acquisition in November, only weeks after it had acquired Symborg, a developer of microbiological technologies in Murcia, Spain.
The sale comes three years after the death of its founder, Jerry Stoller, who built the company into a crop protection juggernaut with annual revenues of more than $400 million from operations in over 60 countries. The company’s biologics — which protect crop yields from climate extremes, disease and natural predators — is a leader in natural crop protection products that are expected to command 35 percent of the crop protection market by 2035.
Latham & Watkins advised Stoller with a mostly Texas team, led by partners John Greer and Ryan Maierson. Stoller’s trustees brought in outside counsel as well, tapping Baker Botts, led by partner Dan Mark.
Dec. 6: NRG Energy expands Its residential technologies with $5.2 billion deal
NRG Energy, a retail utility provider that markets energy under consumer brands like Reliant, plunged further into its retail presence with the $5.2 billion acquisition of Vivint Smart Home Inc. Vivint manufactures a variety of residential home appliances and security devices tied together on a single management platform. The single-core structure allows greater control over both the performance and energy efficiencies of the products.
NRG has its financial headquarters in Princeton, New Jersey, but its operational headquarters is in Houston. The base price tag is $12 per share, or $2.8 billion in cash. But NRG also assumes $2.4 billion in Vivint debt, a feature of the deal that has proved unpopular with NRG stockholders in the short term, with the stock dropping 20 percent in value since the deal was announced Dec. 5. But Mauricio Gutierrez, president and CEO of NRG, insists that Vivint is a long-term fit for their market.
“Customers want simple, connected and customized experiences that provide peace of mind. Vivint’s smart home technology strengthens our retail platform, improves our customer experience and increases customer lifetime value,” Gutierrez said in a statement announcing the deal.
Both sides were advised from New York: NRG by White & Case; Vivint by Simpson Thacher & Bartlett.