SDCL’s Joni Koch: Energy transition deals to continue in the UK&I

Sustainable Development Capital, LLP, Director, Joni Koch, achieved a significant milestone this year when she led the process when General Atlantic’s BeyondNetZero fund, which invests in assets involved in the energy transition, took a position in SDCL. “This investment has set us up for a very bright future and further growth,” she says.

Joni works in the energy transition sector, a sector where deal flow has continued, albeit at a slower pace, despite flat market conditions overall in M&A. She says looking ahead, the outlook for transactions is still cautious, but it’s more optimistic than it has been.

This excerpt from our 2025 UK&I M&A Outlook Report, which features insights from 8 top UK&I dealmakers, explores Joni’s perspective on the factors shaping M&A activity in the UK&I market. Joni discusses the enduring appeal of the energy transition, the impact of refinancing and capital raising, and managing geopolitical and cybersecurity risks.

A cautious but improving outlook

“There continues to be a gap in pricing between buyers and sellers, but it seems to be reducing. We’ve seen inflation moderating and interest rates coming down, although it remains unclear what will happen to inflation once interest rates reduce further. That might impact valuations again. So on the buy side, we still see higher discount rates used in valuations,” she says.

Joni agrees with the consensus that there is dry powder in the market. “More fundraisings closed in 2024 and a number of private equity firms are close to the end of their deployment period and need to make a move to deploy funds.”

The enduring appeal of the energy transition

She expects the energy transition theme to continue to drive deals, which means sustainability, decarbonisation and ESG will be a consideration in transactions. Data centres are also in focus, with transactions involving businesses that make data centres more efficient (for example efficient cooling technologies) likely to become more common. “Technology more broadly is coming back,” says Joni.

Turning to processes, there has been more scrutiny from sellers around investors, so the relationship between buyers and sellers has become an ingredient in transaction markets. “More creative structures are aligning buyers and sellers through earnouts and deferred payments to mitigate risk and align incentives,” Joni says.

As market conditions evolve, she expects a wider range of debt financing structures, some of which include equity-like components, especially in transactions involving private credit. “Private credit is often able to take on more risk and sit more in-between senior debt and equity, instead of a pure senior debt player,” she says.

Further regulatory scrutiny around ESG, green washing and correctly measuring ESG will shape deals in the year ahead. Article 8 and Article 9 funds, sustainable investment funds regulated under the Sustainable Finance Disclosure Regulation (SFDR) in the European Union, are also imposing restrictions on their investments.

“There will be much more focus on target companies’ scope 1, 2 and 3 emissions, what you’re measuring, how you’re measuring it, what you’re doing about it and your timeline,” says Joni, noting environmental concerns are affecting how transactions play out.

“We have already seen investors pull out of oil and gas companies. We can debate whether it’s the right approach, but it’s definitely happening,” she says. Joni thinks while there is still work to be done around measuring ESG, these risks are priced into transactions, though for example there being fewer buyers for legacy assets, but also through ESG risks being included in valuation considerations.

The impact of refinancing and capital raisings

The rise in capital raisings and refinancing indicate that the strategic focus has been on strengthening capital structures of companies and portfolio optimization for investors. This period of recalibration and strengthening, combined with more dry powder in the market, are some of the reasons Joni is optimistic for M&A to pick up again in 2025.

Joni notes that one of the reasons refinancing activity has increased is the decline in the interest rate forward curve. Over the past few years, companies have pushed out refinancing of their debt facilities due to high interest rates in the market. Now, with rates decreasing, these companies are taking advantage of the opportunity to refinance. This trend may not be as pronounced in the overall financing market, but it is a significant factor for those companies that were waiting for more favourable conditions.

Managing geopolitical and cybersecurity risks

In terms of potential risks, escalating conflicts or unexpected conflict resolution of geopolitical tensions are potential black swan events that could impact supply chains, with similar knock-on effects in relation to the inflation experienced during the COVID years. A major cyber security event enacted by a rogue nation state could also derail deal markets.

Evolving deal structures and due diligence

When it comes to due diligence, there will be more scrutiny to ensure risk is right sized and discount rates will need to allow for some movement in interest rates. “It’s about finding risks and making sure they are priced in. We think there will be more of a risk averse approach; more cherry picking of transactions to make sure there is strategic alignment.

Investors will also look to make sure transactions fit regulatory scrutiny from an ESG perspective, especially with Article 8 or Article 9 funds,” says Joni. She expects there will be more structured transactions and use of warrants, earn outs and deferred considerations to align buyers’ and sellers’ interests.

In minority transactions, some buyers might be able to negotiate more control than their stake would call for, for example through board positions, so they can influence strategic decisions, even without having the majority share to do so.

“We are also seeing vendor financing as a solution to funding gaps,” says Joni. This tends to be a potential solution for companies that are cash flow positive, to give the seller comfort the loan will be repaid.

Reflecting on her career, Joni’s advice to others is to keep an open mind about your career path. “This will allow you to identify and grab opportunities along the way, to learn and grow and it might bring you to places you’ve never imagined,” she says.

Looking ahead

Joni’s insights offer valuable perspectives on the M&A landscape in the UK&I. To gain a deeper understanding of the key trends and predictions shaping the market, we encourage you to download the full M&A Outlook report. This comprehensive report features in-depth analysis to equip you with the knowledge you need of the current deal environment in the United Kingdom and Ireland to be able to capitalise on emerging opportunities.