Buyer
Chevron
California-based Chevron is a world-leading energy company. It operates in the oil and gas industry, including the production, storage, and discovery of crude oil and gas products.
Chevron’s main focus is on the production of oil and natural gas. It develops technologies that enhance its client’s industries, like petrochemicals and various additives.
Target
Beyond6
Beyond6, previously a subsidiary of Mercuria Energy Trading, is an alternative energy company that offers B2B consultation and the production of alternative energy like biofuel. They also offer asset management & planning in alternative energy solutions. Their main concern is eliminating their client’s CO2 emissions by turning waste into fuel.
Their renewable natural gas (RNG) vehicles are the cleanest vehicles in circulation. The company uses waste from landfills, farms, and waste treatment facilities to power its operations and pioneer the redefinition of sustainability.
Deal Details & Win-Win Scenarios: 💳
- Chevron will use Beyond6’s asset management and services but also benefit from their operations services run on alternative fuel.
- Chevron will be able to maximize synergies, growth, and innovation and outperform its competitors, possibly driving its stock value down.
- Opportunity cost: The waste gets buried in landfills to decompose, deteriorating the environment, and resulting in the company paying higher taxes.
- However, what Beyond6 does is much more expensive than leaving the waste in a landfill to decompose, incurring more operational costs.
Why do companies merge or acquire?🤨
A company's main reason to merge or acquire. Resulting in:
- Combined business activity
- Better performance
- Overall costs tend to decrease
Some companies engage in M&A because they want to acquire rights to distribute a certain good or service.
Think of Disney Hulu in September 2022; they now have the rights to all the programs on their platform.
This does not refer to borrowed capital.
This suggests that a company can use the target company as leverage to enter the respective market after the deal and use the target company's clients, outreach, and brand recognisability to reach more customers.
Once again, think of Disney's acquisition of Hulu, which not only allows them to sell Hulu's content but also allows Disney to rid itself of a big US competitor.
Increases market share as a consequence
This is similar to the intellectual property concept.
The buyer acquires the target's property, plant, & equipment (PP&E)
Growth refers to company size, management's compensation, and economies of scale, resulting in the company being much more profitable than the two companies alone (i.e. synergies).
Horizontal Merger
Vertical Merger
This merger occurs when two companies sell the same product(s).
They tend to compete for the same customers. They merge to acquire the target’s outreach, customers, market share, and of course, to reduce competition.
Example: Disney acquiring Hulu or Amazon acquiring MGM
This merger refers to two companies that are in the same industry but at different production stages.
Example: If an electric car company purchased a lithium mining company
Public Sentiment and Our Insights: 😁
- Shareholders seem to be satisfied with this acquisition, which is one of the main factors to look at after companies engage in M&A.
- Chevron could sell its RNG to other companies that want to adopt a more sustainable approach to transportation and fueling.
- Chevron can improve the 55 natural gas stations with its huge wealth and further develop it.
- This acquisition can be beneficial in innovating the RNG industry and making it much more mainstream, further aiding climate change and stimulating other companies to go green as well.
- Improved CSR, where the company will pay less tax and have a better public image compared to other oil & gas conglomerates.
