Equity investment structures are evolving to adapt to market dynamics, political and regulatory uncertainty and investor preferences. Against a shifting global landscape, it is more important than ever for investors and developers to ensure that their investment strategies enable them to protect against downside risk and maximise value.

Equity investment into the energy transition has delivered a reliable stream of steady returns for investors and served as a major source of funding for the energy generation resilience on which our global communities and economies depend. In the past ten years alone private infrastructure (including energy transition) assets under management have more than quadrupled to US$1.3 trillion. However, whilst assets under management continues to grow overall deal volume declined in 2024 compared to the previous year and fundraising is still down from the peak in 2022.

State of the market

In a private capital context, fundraising has been affected by factors including interest rates, ongoing geopolitical concerns and slowdown in distributions to LPs as GPs hold investments longer than they did in the past. Data shows that the number of deals that completed in 2024 declined as compared to the prior year, due to a number of factors:

• Many investors bought assets at relatively high valuations following the global pandemic but as multiples are returning to pre-pandemic levels owners are holding onto those assets longer and waiting for a more favourable selling environment.
• Investors are looking to complete more core-plus or value-added deals in the energy transition space which is leading to ongoing valuation mismatches between sellers and buyers.
• Current market volatility and fears of a recession may result in pause/slowdown in M&A activity in the short term.

However, there is reason for optimism, and we expect continued growth of equity investments into the energy transition driven by some global macro factors – the four "Ds": decarbonisation, digitisation, de-centralisation, demographics. These are all fuelled by a global infrastructure deficit and a need to improve system resilience to ensure a stable energy future.

Managing downside risk

It is (and may well continue to be) a buyer's market. Deal features we expect to see more of include:

• Deferred consideration mechanics, earn-outs and claw backs.
• Use of preferred share structures and downside protections, such as exit and buyout rights.

The impact of current market volatility

• Uncertainty around tariffs has been flowing through into discussions on M&A transactions. It's important to consider what parts of the target business may be affected and mapping the target supply chain to identify areas where tariffs and other export or import restrictions could have the most significant impact.
• Sellers preparing a business for sale and buyers undertaking due diligence on a target business should undertake a thorough review of contracts and supply relationships in order to assess whether there are any termination rights or any renegotiation levers that counterparties might have.