What are the key attributes of an energy entrepreneur? Among them is the ability to visualise how and when to commercialise a new technology or to implement a disruptive business model. The courage of conviction to act. The ability to sell a compelling vision to investors. Unquestionably, each of these are essential ingredients for success.   

However, I would posit that the foresight to recognise when the time has come to seek a corporate partner is an equally valuable skill, particularly in the energy sector where large sums of capital are typically required to scale a physical asset business. Possessing the self-awareness to recognise when, as a founding entrepreneur, you have taken a business as far as you can, and that the time has arrived to find a (corporate) partner to help take the company to the next level of growth, is also a key to success.   

How to recognise when such a moment has arrived?   

Typical tell-tale trigger signs may include: 

• The need to fund a five-year business plan to accelerate future growth – often a measure of success in itself, when a technology/model is proven and it becomes a race to scale.  
• The need to expand internationally beyond the company’s home market.  
• The sector is beginning to consolidate and competitors are themselves partnering with large, well-capitalised partners.  
• The investment required to ‘perfect’ a technology becomes prohibitive for a small scale enterprise on its own.  

Minority interest, joint control or acquisition 

Once the need to partner is recognised, the question then becomes whether to offer a partner a minority interest, joint control (50%) or to sell the business entirely. On this point, I remember calling up a founding CEO many years ago on a Monday morning to be greeted with: ‘Ah yes, I’ve been expecting your call – are you seeking a 50% interest or to buy us out in full?’ And this before introductions had been exchanged!  

Typically, a minority interest would be offered when growth capital is required but the founders wish to retain strategic and operational control of the company and are happy to monetise (for personal gain) part of the value they have created thus far.   

Joint control would come with an expectation of a more substantial level of commitment from an incoming partner. In addition to a larger funding stake, the incoming partner would be expected to bring material ‘intangible’ benefits such as corporate relationships that enable access to new markets or customers; a strong credit rating to support more competitive forms of financing; access to global supply chain efficiencies and the like. Of course, essential to the success of any joint control arrangement is a strong alignment of underlying strategic intent, robust governance provisions and an agreed mechanism for resolving deadlock.   

Viewed from the perspective of an incoming corporate partner, a minority or joint control investment would often be implemented when the partnering corporate does not have the expertise to run the business itself (typically in the case of an entry into a new market sector) and therefore needs the founding entrepreneurs to continue to run the business until the corporate learns the new business model. Such an arrangement often contains a ‘lock-in’ period for the founders and a call option that enables the corporate to acquire the founders’ outstanding equity in three to five years at market value or as a pre-agreed multiple of profitability (EBITDA).   

A full acquisition is typically pursued when the corporate is already in the same market segment (or a very close adjacency) and is confident that it can access material sources of value on its own, be that accelerated growth or operating synergies and the like. In reality, full acquisitions are also often precipitated by the need to remove a constraint that is holding a business back from reaching its full potential.   

This could result from misaligned governance, an asymmetric liquidity/funding constraint or a divergent strategic outlook between the shareholder parties. In such circumstances, it is often better for all stakeholders that one company steps in to take full ownership and control.  

Once the need to partner is recognised, the question then becomes whether to offer a partner a minority interest, joint control (50%) or to sell the business entirely.

Energy industry examples  

In the energy sector, examples abound of each scenario, including Equinor’s minority investments in Scatec Solar and Ørsted; Origin Energy and Tokyo Gas’ minority investment in the UK’s Octopus Energy; and KKR’s 30% interest in Enilive. Recent examples of joint control include TotalEnergies and BP’s partnerships with TotalEren and Lightsource BP respectively, each of which were entered into in 2017 and both of which were converted to 100% full ownership in 2023.   

In evaluating a partnership or acquisition of an emerging energy company (beyond a venture capital investment) what does a corporate look for? The most common features include accelerated access to new technology, material market share, brand value and, most important of all, the founding team and the platform. For corporates, it is usually easier and quicker to build a new business around the acquisition of an existing one, which can provide the ‘kernel’ or seed around which a new business can coalesce.   

Over the years, I have had the privilege of interacting with many energy entrepreneurs, through managing processes to establish partnerships or implement acquisitions. Invariably, successful entrepreneurs are driven by a guiding mission, and once a certain level of success has been accomplished, they are keen to protect and enhance their personal legacies. In my estimation, the very best entrepreneurs are the ones who recognise when the moment has arrived to seek a partner to help disseminate their innovation as widely as possible across the global markets. A true measure of strength lies in recognising one’s limitations.   

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.  

• Further reading: ‘Retaking control: Africa boosts indigenous participation in oil and gas ventures’. Significant M&A action is underway in Africa as indigenous operators take over from the oil majors. This may seem counter-intuitive as the energy transition towards renewables gathers pace with the threat of stranded fossil fuel assets. However, African countries make no secret of wanting to own and develop their fossil fuel resources, following the fortunes made in this sector by the oil and gas majors historically.  
• The oil and gas industry is at a significant juncture. Energy companies, investors, regulators and other stakeholders are re-evaluating their strategies relating to the energy sector. Darren Spalding and Kirsty Delaney of law firm Bracewell (UK) LLP identify emerging trends shaping the industry in the short-to-medium term as the market evolves.