The M&A market for 2023 was characterized by some familiar bedfellows: uncertainty and energy. Dealmakers had to run a gauntlet that included, at various moments, war, inflation, Federal Reserve intervention, price uncertainties and even scandal in tech-heavy business sectors like banking and blockchain.
But despite all that, 2023 ended in decent shape with more than 1,000 Texas-related M&A deals from which social conformity requires us to choose only 10. That’s less than one percent, or less than one for each 100 deals. It’s a painful process behind a venerable tradition for which we must explain the rules, even if we plan to ignore them.
First, these are all deals that are important to Texas — not necessarily the biggest — but ones that represent some Texas connection, most with significance that travels beyond the boundaries of the Lone Star State.
Most of the largest deals this year are energy related. But they bear more significance than simple size.
It’s been a good year for traditional energy — maybe even a comeback year — for the sector; one of consolidation, incentivized investment, surprisingly stable prices. There were important deals in other sectors, notably in sports and entertainment.
But noticeably absent, for the most part, are the big-ticket tech, healthcare and manufacturing deals that have populated the list for the past few years.
Depending on your definition, there are a few of those on this short list; but as we’ve noted elsewhere, 2023 was characterized by the return of energy as the straw that stirs the Texas M&A market, and not even seductive discussions about AI could change that.
Says Akin’s Stephen M. Boone Jr., leader of the firm’s U.S. oil and gas practice: “Notwithstanding the relative flurry of deal activity later in the year, 2023 on the whole was largely a year of many significant challenges for the industry and the ability to get M&A all the way to the finish line.”
Those challenges included staggering interest rate increases, inflation and related development complications, ESG pressures, retreating lenders, and disinterested institutional investors, he explains. “The busy year many were anticipating in light of healthy balance sheets and strong commodity prices just did not materialize until the big flurry of large-scale M&A activity we’ve seen here relatively recently,” he says.
ENERGY
One need only look at the glaring size and scope of energy deals during the last half of the year to see a reconstituted market respect for the complexity of fossil fuel dominance. The rise of carbon capture and the integration of alternative energies are part of a landscape still dominated by oil and gas.
Notes Eric Otness, head of the M&A/corporate group in the Houston office of Skadden, the energy transition is underway, and he is seeing increased cooperation among major global players through joint ventures and co-investment structures that seek to capitalize on government subsidies and technological opportunities.
“One major challenge is how fast these technological breakthroughs can occur as well as how much support they will garner and how quickly they can be implemented given somewhat mixed governmental policies and varying levels of public support,” he says.
Otness says there are deal opportunities for strategics, private equity, multinationals, funds or a combination thereof “who can read the cards right and line up the financing necessary to invest in transformational infrastructure and energy projects.”
Below are a few of those “transformational” projects that emerged in 2023.
July 13 and Oct. 11: ExxonMobil’s $4.9B acquisition of Denbury and $64.5B purchase of Pioneer Natural
ExxonMobil Corp. engaged in M&A in a big way in 2023 with two big purchases. In October, as had been widely rumored, the oil major announced that it agreed to buy Permian Basin player Pioneer Natural Resources for $59.5 billion in stock.
It’s the largest deal involving a Texas-based company since AT&T’s 2016 acquisition of Time-Warner for $85.4 billion. The transaction is also the biggest globally in 2023 and the largest by the oil giant since its acquisition of Mobil in 1999.
TPH analyst Jeoffrey Lambujon believes that ExxonMobil already held the most attractive global upstream portfolio longer term, but the highly favorable Pioneer assets will provide the oil giant with the best-in-class short-cycle investment flexibility.
Indeed, Piper Sandler analyst Ryan Todd saw the transaction as filling the only identifiable question in its portfolio – insufficient long-term inventory – and establishing it as one of the most dominant players across nearly every business segment (deepwater, U.S. shale, LNG, refining, chemicals), a “combination of growth, returns and sustainability against which most of its peers will increasingly be measured,” Todd wrote.
On valuation, Todd said the price was reasonable and will boost earnings per share and free cash flow assuming modest synergies.
ExxonMobil hired Davis Polk & Wardwell as its outside counsel led by Louis Goldberg, Oliver Smith and Shanu Bajaj. Craig Morford is its general counsel.
Pioneer used Gibson Dunn led by partners Jeffrey Chapman and Tull Florey. Key internal legal advisors for Pioneer were general counsel Mark Kleinman, vice president of legal Akshar Patel and executive VP Mark Berg.
In the second deal, the $4.9 billion purchase of Denbury, it makes sense for ExxonMobil as the Denbury’s 1,300 miles of carbon dioxide pipeline would have been difficult, costly and time-consuming to replicate across the high emitters along the Gulf Coast, Capital One Securities analysts wrote in a note.
The transaction marks one of the first significant public M&A deals where carbon capture and storage assets make up the bulk of the value – about $2.8 billion, according to Enverus Intelligence Research.
Steve Gill, the Vinson & Elkins partner who led from Denbury’s side, notes that such deals have been studied in C-suites within the midstream, upstream and energy transition sectors.
“It’s difficult to not draw an inference that they have caused people to sharpen pencils around M&A strategy,” he says.
Davis Polk again counseled ExxonMobil led by partners Goldberg, Smith and Bajaj in New York. Jim Matthews is general counsel at Denbury and a former V&E partner.
Oct. 23 and Sept. 12: Chevron’s $60B acquisition of Hess and its purchase of the largest hydrogen plant in the world from Haddington
Chevron did two big deals as well involving Texas lawyers, but in different parts of the world.
Unlike ExxonMobil’s acquisition of Pioneer, which extends its reach and depth in the Permian Basin, Chevron’s purchase was largely about Hess’ properties in Guyana, although Hess claims it is a leading oil and gas producer in the Bakken shale in North Dakota (it also owns assets in the deepwater Gulf of Mexico and the Gulf of Thailand).
Todd explains that with a 30 percent stake in what is likely the industry’s most attractive global duration/growth resource, Chevron also addressed a growing shareholder concern — long-term resource depth — while increasing the long-term free cash flow and duration outlook.
“The Stabroek Block in Guyana is unquestionably the most attractive global oil asset of the last decade-plus,” Todd contends.
The analyst likes the long-term portfolio impact for Chevron, increasingly differentiating its competitiveness within the international oil company landscape globally (including competitors like Exxon, BP and Royal Dutch Shell).
The Chevron team included JP Whalen, Chevron’s corporate counsel in Houston, and Siva Barnwell Adams, senior managing counsel for transactions, also in Houston (see The Texas Lawbook‘s profile of her here). Timothy Goodell is Hess’ general counsel.
Paul, Weiss, Rifkind, Wharton & Garrison is outside counsel to Chevron led by partner Kyle Seifried, counsel Stan Richards and partner Scott Barshay. Wachtell, Lipton, Rosen & Katz advised Hess led by Marty Lipton, Karessa Cain and Zachary Podolsky.
In a smaller deal, Chevron announced it closed a transaction with Haddington Ventures to acquire Magnum Development and thus a majority interest in ACES Delta, a joint venture between Mitsubishi Power Americas Inc. and Magnum Development. Terms weren’t disclosed. ACES Delta is developing the Advanced Clean Energy Storage project in Delta, Utah.
The project plans to use electrolysis to convert renewable energy into hydrogen and will utilize solution-mined salt caverns for seasonal, dispatchable storage of the energy. The first project, designed to convert and store up to 100 metric tons per day of hydrogen, is under construction and expected to enter commercial-scale operations in mid-2025.
Archie Fallon, the Willkie Farr & Gallagher partner who advised Haddington, said it’s “a signal” that Chevron wants to invest in hydrogen as part of its sustainability initiatives.
It’s not a small undertaking: The project is considered to be the world’s largest green hydrogen platform, attracting a $650 million equity commitment from Alberta Investment Management Corp., GIC, Manulife Financial Corp. and Ontario Teachers’ Pension Plan Board with rights to increase the investment to $1.5 billion.
May 14: Oneok’s $18.8B acquisition of Magellan Midstream
In one of the top five largest transactions in the country in the first half, Tulsa natural gas transmission giant Oneok agreed to acquire crosstown energy infrastructure rival Magellan Midstream for $18.8 billion.
The acquisition notably boosts Oneok’s scale and potentially signals more deals to come, according to Truist Securities analyst Neal Dingmann. “We view the deal as largely positive given the relatively low valuation versus recent deals and the potential earnings growth profile of the assets all while maintaining largely solid financial,” the analyst wrote in a note.
Oneok branching out into the oil business should also deliver significant cost savings, added Dingmann, who thinks the complementary nature of the assets could result in the company hitting at least $200 million of operational synergies once the two become fully integrated.
It’s a sign that buyers are once again willing to consider premiums to get deals done, according to Sean Wheeler, a partner at Kirkland & Ellis who led the Oneok deal.
“This is a change of pace after two-plus years of low or no premium deals in the energy sector,” he said in August. “Companies are once again looking for growth through acquisitions.”
The Latham & Watkins team advising Magellan was led by Houston partners Ryan Maierson and Kevin Richardson.
Dec. 11: Occidental’s purchase of CrownRock for $12 billion
Continuing the consolidation of oil and gas in the Permian, Houston-based Occidental announced Dec. 11 that it was acquiring Midland’s CrownRock, a joint venture of CrownQuest Operating and Lime Rock Partners, for stock and cash in a transaction valued at $12 billion.
The acquisition signals Oxy’s recovery from its pre-Covid purchase of Anadarko Petroleum for $55 billion, including debt. Although the deal made Oxy a prime presence in one of the most productive basins in North America, a subsequent collapse of oil and gas pricing left it with what many saw as an uncertain future.
The price also appears rich: about 5 to 5.4 times projected 2024 EBITDA, according to analysts, and $200 million higher than a report by the Wall Street Journal, which broke the news. And the impact, while more modest, is not unlike post-Anadarko: significantly higher leverage, with an increased reliance on future asset sales and material shareholder returns like buybacks likely on hold for the next couple of years. So Oxy is faced with a familiar question: Will the increased risk profile pay off in the end?
Vinson & Elkins advised CrownRock with a team led from Houston by partners Steve Gill and Robert Kimball while Latham & Watkins advised Occidental with a group led by Houston partners John Greer and Bill Finnegan.
Feb. 20 and March 20: NextDecade and Sempra forge ahead with Rio Grande and Port Arthur LNG facilities
On the last trading day of 2022, the Henry Hub price for LNG stood at $4.06 per million BTU. By Dec. 1, 2023, the price was $2.72, a decline of 33 percent. One might expect such a drop to dampen the appetite for any dramatic rise in LNG export capacity along the Texas Gulf Coast. Think again.
Two of the most far-reaching deals of 2023 were decisions to press forward with multi-billion facilities for the processing and export of Texas LNG.
In July, when NextDecade Corp. announced it had made a positive final investment decision, or FID, to construct the first three liquefaction trains Rio Grande LNG export facility in Brownsville, there was little reason for surprise.
In February, the company had already announced an agreement among its investors — including $5.9 billion in commitments from Global Infrastructure Partners, GIC, Mubadala Investment Co. and TotalEnergies — to fund the First Phase. The resulting 984-acre complex in Brownsville is being billed as the largest privately funded infrastructure project in Texas.
Kirkland & Ellis advised GIP, Jones Day counseled TotalEnergies, Sidley Austin repped GIP, White & Case was outside counsel to Mubadala and Norton Rose Fulbright advised several major lenders.
Likewise, Sempra Infrastructure launched Phase 1 at the Port Arthur LNG Phase 1, a project with capital expenditures estimated at $13 billion. The transaction entailed a joint venture between Sempra and ConocoPhillips, the sale of an interest to KKR (between 25 percent to 49 percent) and $6.8 billion in non-recourse debt financing.
An SEC filing revealed that KKR would fund its equity share of pre-closing development costs in excess of $439 million. KKR already owned a 20 percent equity stake in Sempra Infrastructure, so a buy-in was natural for the mammoth private equity firm.
The project featured a multitude of law firms, including Baker Botts for Sempra (with a group led by Houston partners Jason Bennett and Natasha Khan), Latham & Watkins for ConocoPhillips (Houston partners Ravi Purohit, Chris Peponis and Justin Stolte) and Simpson Thacher for KKR (Houston partners Breen Haire and Shamus Crosby). Sempra Infrastructure Chief Legal Officer Carolyn Benton Aiman oversaw it all in-house.
“Port Arthur Phase 1 is an important project not only for Texas, but for the U.S. as a whole, for energy security, economic growth and near-term supply of reliable and cleaner energy,” Haire says.
TECHNOLOGY SURVIVES, THEN THRIVES
One of the most explosive events of 2023 was the March 10 federal takeover of Santa Clara’s Silicon Valley Bank, a tech-heavy lender that carried an over-sized share of the bank accounts of well-funded technology startups. It was followed, two days later, by a run on deposits at Signature Bank, a New York real estate lender and 19th largest bank in the U.S. and one of the first to host a platform for blockchain payments. And barely a week later, a troubled Credit Suisse, a ubiquitous M&A advisor and lender, announced its sale to rival UBS to avoid a similar fate.
The resulting unease in an already uneasy banking sector tamped M&A closings in the pipeline as their parties, particularly investors and lenders, examined and re-evaluated their prospective deals.
The reverberations, however, proved remarkably short-lived and tech deals recovered as energy deals thrived.
May 22: Idex acquires Iridian Spectral Technologies for $122M
During the first half of 2023, megadeals of any kind slowed down in favor of more middle-market and smaller sized transactions.
“There are plenty of deals in the pharma/life sciences, technology, industrial, energy and insurance/financial services sectors, in particular, still successfully closing,” noted Sara Garcia Duran at the time.
She worked on one, Idex’s acquisition of Iridian Spectral Technologies for C$150 million ($112 million). Idex CEO and president Eric Ashleman said the addition boosts the company’s offerings in its core markets and allows it to expand into new ones.
“[The deal is] a perfect example of the kinds of strategic M&A transactions that have been successful for corporate buyers” Duran said.
Duran has worked on other Idex deals, including its purchase of Muon Group from European PE firm Robeson Capital last year for €700 million ($771.8 million) and Airtech Group in 2021 for $470 million. There are bound to be more to come.
June 26: Vista sells Apptio to IBM for $4.6B
When IBM reached an agreement with Austin-based Vista Equity Partners to purchase Apptio Inc. for $4.6 billion, the deal represented Big Blue’s largest acquisition since its $34 billion acquisition of Red Hat in 2019.
Washington-based Apptio is a developer of financial and operational IT management and optimization software. Simply put, their platform helps business executives manage their software investments, particularly cloud costs, at a time when companies are cutting their technology budgets.
The purchase is expected to accelerate the advancement of IBM’s IT automation capabilities with such well-heeled Apptio clients/partnerships as Amazon Web Services, Microsoft Azure, Google Cloud Platform, Salesforce, ServiceNow, Oracle and SAP.
Software is key to IBM’s story, according to a recent BofA Securities report, but the firm estimates that Apptio is only expected to contribute 2 percent sales growth to software segment in 2024 and about 1 percent to the overall company.
Paul Weiss was outside counsel to IBM led by corporate partners Steven Williams, Laura Turano and Scott Barshay in New York while Kirkland represented Austin-based Vista led in part by corporate partner Brittany Sakowitz in Houston and Austin.
PHARMACEUTICALS
July 28: Biogen’s wins biopharmaceutical bidding war with $7.3B purchase of Reata
In one of the largest biopharmaceutical deals in memory, Plano-based Reata Pharmaceuticals agreed to be acquired by Biogen Inc. in a cash transaction that valued Reata at $7.3 billion.
Based in Cambridge, Mass., Biogen cited its interest in Reata’s advanced development of therapeutics aimed at regulating cellular metabolism and inflammation related to a variety of neurologic diseases.
Biogen wasn’t the only one interested, according to trade publication Fierce Pharma based on securities filings. Back in May, before Biogen entered the picture, a separate “large-cap pharmaceutical company,” identified only as “Party A,” set up meetings with Reata management.
Ultimately, a bidding war ensued in which Biogen came out on top, anteing up about $7.3 billion in cash to acquire Reata, The trade pub said Reata’s fortunes had been boosted following FDA approval in February for omaveloxolone (branded as Skyclarys) as a treatment for Friedreich’s ataxia, a genetic neurological disorder that attacks the nervous system.
William Blair analysts viewed the acquisition, although not inexpensive, as fitting Biogen’s previously described acquisition goals of de-risked, value-added and accretive assets.
Biogen tapped Cravath, Swaine & Moore as its legal advisor led by partners Faiza Saeed, Mark Greene, Aaron Gruber and Bethany Pfalzgraf. Vinson & Elkins served as Reata’s counsel led by partners Lande Spottswood, Robert Kimball and Katherine Frank.
Reata’s chief legal officer is Michael Wortley, who retired from V&E in 2015 after serving 16 years as head of the firm’s corporate law department.
RETAIL/MANUFACTURING
May 9: Tempur Sealy International acquires Mattress Firm for $4B
Longstanding creditors of Houston’s bedding behemoth Mattress Firm found a measure of relief in its sale to Kentucky-based competitor Tempur Sealy International. The firm had been controlled since 2016 by the investment firm Steinhoff International Holdings NV.
However, in December 2018, the company emerged from federal bankruptcy protection with a group of creditors owning slightly less than 50 percent of the company. The combined companies, once the transaction passes antitrust muster, will operate more than 3,000 retail stores, 30 e-commerce platforms, 71 manufacturing facilities and four research and development facilities worldwide. Antitrust clearance is not considered automatic.
Tempur Sealy became the world’s largest mattress manufacturer in 2012, with the $1.3 billion acquisition of Sealy Corp. With the acquisition of Mattress Firm, a longtime partner and competitor, it’s now even bigger.
The deal wasn’t handled by Texas lawyers (Cleary Gottlieb Steen & Hamilton advised Tempur Sealy and Simpson Thacher and Sidley Austin advised Mattress Firm and its management), but Mattress Firm’s Texas-based general counsel, Kindel Nuno, and her staff had a heavy hand in forming the deal.
SPORTS & ENTERTAINMENT
Nov. 2: Six Flags/Cedar Fair agree to $8B merger
Amusement park companies Cedar Fair and Six Flags Entertainment Corp., an iconic entertainment provider based in Arlington, announced an agreement to combine in a merger-of-equals transaction worth $8 billion.
Jefferies analyst David Katz said via Yahoo Finance the merger will give Six Flags something it has been lacking, a consistency of strategy and management.
“It really has been challenged to define its value proposition to consumers, and I think that’s been going on for a decade or more,” he said.
With such attractions as Knott’s Berry Farm, Kings Dominion and, in Texas, the landmark Schlitterbahn Water Park, Ohio-based Cedar Fair has a stable and a diverse operating model that includes youth sports parks and hotels.
A combined footprint could potentially make a national pass network offering compelling for visitors while some shared locales could also potentially boost uptake, Macquarie analyst Paul Golding said.
Six Flags used Kirkland & Ellis led by corporate partners Sarkis Jebejian and Allie Wein in New York and Emily Lichtenheld in Austin. Cedar Fair hired Weil, Gotshal & Manges and Squire Patton Boggs as outside legal counsel; the all-New York team from Weil was led by partner Michael Aiello.
Sept. 30: Astros, Rockets Create Space City JV
Sports viewership is broader and more diverse than ever before, and that’s been both a blessing and a curse. In 2023, professional sports teams across the country found themselves facing long-brewing financial pressures from troubled Regional Sports Networks (RSNs) that had created new sources of revenue for teams like baseball’s Houston Astros and basketball’s Houston Rockets.
But with dramatic changes in available technologies the RSNs are failing, plagued by declining advertising revenues, fickle viewers, increased channel usage fees and viewers switching in large numbers to free or low-cost antenna-based and streaming systems like Roku, Sling and Vudu.
To fill the void, at least temporarily, the two Houston teams created the Space City Home Network, a joint venture that will see baseball and basketball fans through the next couple of seasons — or at least until the dust settles over a viable business plan that accommodates the highly volatile streaming sector.
The deal involved their acquisition of AT&T SportsNet Southwest from Warner Bros. Discovery, one of the minor cogs in the $57 billion acquisition of Time-Warner by Discover in 2019.
Three firms advised on the Space City deal: Latham & Watkins (led by New York partner Ian Schuman and Houston partner Nick Dhesi), Vinson & Elkins (led by Mark Kelly and Harry Perrin in Houston and Francisco Morales Barrón in New York) and Weil Gotshal (Dallas partner James Griffin).
Nov. 28: Mark Cuban Divests Majority Ownership to Las Vegas-based Casino Family for $3.5B
The traditional lines between sports teams and gambling interests became a lot more blurred as Las Vegas Sands, a casino company controlled by Miriam Adelson, widow of casino magnate Sheldon Adelson, announced Nov. 28 it was selling $2 billion of her shares to buy an unspecified professional sports team, which turned out to be a 51 percent share of Mark Cuban’s Dallas Mavericks.
Teams from Latham & Watkins (led by partners Frank Saviano in New York and Nick Dhesi in Houston) and Jackson Walker (partners Brian Lidji and Kyle Hooper in Dallas) advised on the deal, along with Mark Cuban Companies CLO Robert Hart and Mavericks GC & Chief Ethics Officer Sekou Lewis. Katten advised the Adelson and Dumont families for Sands, led by partner Adam Klein and assisted by Dallas associate Enzo Hernandez.
The structure of the unusual deal, in which Cuban retains management of the team, is linked to Cuban’s not-so-secret desire to develop casino gambling around a new arena for the team.
In a rapidly changing professional sports environment that has grown accustomed to exponential revenue growth from ancillary sources like real estate and broadcast rights, Cuban’s bold use of his equity in the Mavericks to promote a closer relationship with casino gambling interests constitutes a credible and determined “outside voice” that could alter longstanding public and political resistance to such pairings.
In fact, Cuban seems to be gambling on that.