M&A transactions have seen an uptick in the energy and utilities industry amid cost pressures, changing government regulations and the energy transition. As of 2024, the value of announced deals in the industry exceeded $150 billion, nearly double the value through the same period in 2023. M&A is expected to further accelerate in Q1 2025 after the Fed’s anticipated rate cut.

While there is significant opportunity in the sector to enable more reliable, affordable and sustainable energy solutions through M&A transactions, there is also significant risk. Most M&A activity fails to see the expected value of the transaction because ineffective integration processes and inadequate cultural integration prevent its full realization. Utility leaders need to think differently about how they approach these corporate reorganizations for their own bottom lines and to ensure they can continue to deliver safe and affordable energy to their customers. This requires adopting key strategies before, during and after the deal that prioritize a clear vision of the future and communication, active engagement and buy-in between all parties involved.

Setting M&A deals up for success

Smooth leadership and team transitions should start weeks to months before a deal closes and continue well after.

Pre-deal closing

It’s important to consistently and clearly articulate the value that each legacy business brings to the transaction – and the anticipated plan for how to optimize that value. For example, are you looking for a true integration or will you continue to run separate operations under a common “holding” company? This requires aligning the opportunities a transaction presents to both organizations as early as possible. Is it about expanding service territory? Enabling faster innovation and adoption of renewable energy solutions? Furthermore, before the transaction, be very diligent about conducting a culture audit and understanding the value of each of the legacy businesses. This will require an assessment of where there may be natural alignment or potential tension points. Then, use this information when evaluating the potential of the deal and whether it will yield the value you’re seeking. Once the ideal outcomes are defined, they can be used as a guidepost for designing the leadership and team structures needed to optimize the opportunity at hand.

Too often, M&A leads to restructuring efforts that are grounded in old ways of thinking or a “winner takes it all” type of mindset. Instead, think about what structures will best enable value realization. Consider what should be centralized and what functions should or need to remain decentralized for the business to remain effective. Assess the strengths of each of the legacy businesses – and how these do or do not, align with the future state structure. Do this before determining who will lead which functions, business units and teams, to avoid the pitfall of building teams around a specific leader without consideration for what structure is most likely to achieve the best business outcomes.

As you start to determine which executives will take which roles, clearly articulate the skills, mindsets and ways of working that are going to be needed to recognize the expected value of the newly integrated organization. It’s important to recognize that what is needed for the future state may be different than what was needed in each legacy business. In addition, think through which functions and teams need to work in concert to achieve target outcomes (like Shared Services or Operations if you are looking to drive enhanced cost efficiency) and which may have the biggest impact in demonstrating an integrated and collaborative culture between both legacy entities. Which business lines or functional units you emphasize will likely depend on the ultimate structure of the business, such as a regional setup versus a service line setup (electric, gas, transmission, etc.).

Setting employees and executives up for success

M&A transactions come with some amount of unavoidable uncertainty and risk, which is likely to trigger employees’ "Survive" reactions. Many employees are likely to view M&A as a potential threat – to their role, stability and comfort – that will create a sense of anxiety and potential trepidation. While this reaction can be useful to a degree because it creates a sense of laser-focused problem-solving, it can also get in the way of effective integration if not managed well. To ensure this Survive response doesn’t “overheat,” creating a pervasive resistance to the change, leaders need to also find ways to activate “Thrive” by helping the workforce see the opportunities ahead – not just for the business, but for themselves as individuals.

Too often during M&A, there’s a sense of, “This is just part of the process that we need to accept,” but that doesn’t need to be the case. Leaders can get ahead of any negative responses to the perceived threat of M&A and instead foster excitement for a new chapter by:

• Communicating the opportunity this transaction creates for customers, employees and the business. And don’t just say it once. Articulate the opportunity over and over again, in different forums and using different delivery mechanisms.
• Acknowledging the reality that people are likely feeling uncertain and anxious. This will help mitigate the perception that leaders’ optimism is naïve or out-of-touch with front-line employees. Provide opportunities for people to share how they are feeling, and why, so there is a healthy outlet for concerns.
   
• Being clear about what leaders do and do not know. This is more helpful than waiting to address questions because it will prevent employees from assuming leaders have answers they aren’t sharing. Leaders also need to be open and honest throughout to maintain morale and momentum.
   
• Engaging teams with hands-on work as soon as you can to create a sense of ownership and belonging. For example, train call center reps to receive calls from the other company’s customers by collaborating on scripts and drafting question responses.

As B.R., the EVP of Strategic Transformation Projects at a large U.S. utility, adeptly articulated, people are the key to any successful transaction:

M&A transactions meet or exceed their objectives because of the people. Once the deal is announced, moving quickly towards engaging the people, from both companies, to accelerate from survive to thrive is vital. The approval process for a utility transaction is usually protracted due to the additional regulatory approvals required. Use this time to accelerate the engagement of the team from senior leaders down to frame up how the new organization will operate, including the values of the combined entity, compensation and benefits and other areas that accelerate the survive to thrive focus post-closing.

Empowering teams to be part of the solution keeps them engaged and feeling valued as part of the company’s future. No one wants change done to them – employees are much more likely to help drive value if the change is done with them.

Setting the sector up for success

Every single utility is committed to providing reliable, safe and affordable energy to its customers – and many are increasing their focus on a commitment to sustainable energy solutions. The fact that these are consistent across utility companies could actually create some risks when it comes to M&A. Beneath the layer of shared language, utilities can exhibit vastly different cultures and approaches to achieving these commitments to their customers. For example, across the sector, there are wildly varying levels of risk aversion versus risk-taking.

This dichotomy is especially critical when it comes to the industry's race to net-zero goals or the deployment of emerging technologies like AI. Some utilities may eagerly position themselves as pioneers, willing to blaze a trail and embrace innovation, while others opt to cautiously wait and follow established best practices. Moreover, because the industry has a traditionally long-tenured workforce, the established cultural norms in each organization have very deep roots that are hard to change.

In addition, aligning the workforce's capabilities with the evolving needs of the business may require a cultural shift in how utilities approach talent management. Traditionally, utilities, employees are valued for their deep technical expertise in a given area. When bringing two entities together, with a focus on meeting the future needs of the industry, leaders will likely need to upskill or reskill employees. Balancing the needs of today (like replacing aging infrastructure) with the demands of tomorrow (like increased load growth and the clean energy transition), requires an agile workforce with skills that are transferable across teams and roles.

Ultimately, successful M&A comes down to being crystal clear on the organizational behaviors that will achieve long-term success in the rapidly evolving energy sector. When an industry is undergoing profound change, or a utility is working through a merger or acquisition, bringing the new organization along requires thoughtful approaches and a united strategic vision. Rather than dwelling on “how we used to do things," keep messaging and initiatives resolutely forward-looking and results-oriented. Maintaining a sharp focus on what will equip the company to thrive in the future will help hold everyone accountable for measurable success. This will require building and maintaining trust by respectfully challenging teams, continually clarifying expected behaviors and mindsets and co-creating examples of what success looks like in the new context.

For utilities in particular, maintaining operational efficiency is paramount. Being deliberate about reducing handoffs, increasing innovation and enabling human capital to work in tandem with technology can make a significant difference in day-to-day performance. Given the industry's large population of long-tenured employees, loyalty and personal connections should be appropriately honored during integration. Prioritizing clear communication and expectations about the path ahead will be essential for managing the natural anxiety that accompanies the major changes that come with M&A.