The upcoming November U.S. election is expected to pause some energy deals in Texas as companies reconsider corporate tax rates potentially rising, according to a prominent M&A lawyer in the state. “The amount of regulatory change in the last year has been so significant that what happens with the election is in the minds of directors and management teams who are thinking about doing a Q3 or Q4 deal,” said Nick Dhesi, a mergers and acquisitions partner at Latham & Watkins in Houston, in an interview. “We’re already seeing people look at the election as a milestone they want to get beyond,” he added.
The energy sector has been particularly active, buoyed by commodity prices and incentives under the Inflation Reduction Act for projects like electric vehicles and solar panels. The market’s vitality can be seen in the over 2,000 global energy transactions totaling nearly $340 billion so far this year, according to Bloomberg data. Notably, major law firms have been steering significant deals, such as Diamondback Energy Inc.’s $26 billion acquisition of Endeavor Energy Resources and ConocoPhillips’ $17 billion purchase of Marathon Oil Corp.
Dhesi predicts that the energy sector will witness more public offerings and further engagements in private credit, although maximizing returns from these investments could present challenges. “The challenge right now when you think about getting into the investment,” he noted, “is how do I get out of the investment?” This remains a critical consideration given that total private credit assets are projected to hit $2.2 trillion by 2027, according to London-based investment data company Preqin Ltd.
The intense competition within the Texas legal market, driven by national firms establishing a presence to capitalize on the lucrative deals market, has further shaped the industry landscape. Latham opened its Houston office in 2010, followed by Kirkland in 2014. “Clients in this market are so savvy to the quality of service they’re getting,” Dhesi said. “It’s really more about who can be the best adviser to their client, more so than just having long-term relationships.”