By: JEREMY OSTERBERGER, President and COO BIC Alliance

For successful mergers and acquisitions, O&G leaders must fill talent gaps now. While M&A activity in the downstream sector has declined, there’s a silver lining in the broader context.

In Q1 2024, downstream M&A deals declined, according to a report by financial risk and advisory firm Kroll. Specifically, Kroll noted in that quarter, “the downstream sector shrank by 11 deals.” However, the firm explained that while “there was a 16% reduction in the number of deals, their disclosed value experienced an 83% increase.”

Global management consulting firm Kearney expounds in its 2024 Chemicals Executive M&A report that since 2019, M&A activity has “been on a downward trajectory.” Yet, the majority of chemical manufacturing executives Kearney surveyed see a bright future for M&A activity. Over 50% of chemical executives indicated they “expect an increase in M&A activity in the next 12 to 18 months.”

For industry executives, pursuing the right M&A opportunities is crucial. To do so, they should not be driven by a desire to follow the crowd or a fear of falling behind. Instead, they must clarify their corporate mission and long-term vision. Then, they need to evaluate emerging technologies and the current regulatory landscape to identify which potential M&A opportunities pair well with their organizations.

However, pursuing opportunities that are a good fit is only part of the equation for M&A success. Leaders need the right talent in place for deals to succeed post-transaction. Executives should determine which direction they want their companies to go in, focus on potential M&A opportunities and discern talent gaps within their teams instead of relying on the buyer.

Acting now to get the right talent on board is critical. In a 2024 analysis, global management-consulting firm McKinsey pointed out that the energy industry is “facing two significant and interacting areas of talent demand: securing talent to build and run fast-growing new energy businesses and maintaining core talent for traditional oil and gas production.” Additionally, citing data from the U.S. Bureau of Labor Statistics, McKinsey explained how dire the situation looks for the U.S. energy sector — “as many as 400,000 employees in the sector are approaching retirement and are expected to retire in the next 10 years.” McKinsey also noted that in light of the “oil and gas industry’s negative perception among younger workers, traditional energy businesses may find themselves at the short end of an upcoming talent squeeze.” Executives need to get ahead of the industry’s looming talent shortage, not wait until it hits their companies. Regardless of how strategic an M&A is, it’s unlikely to succeed if the right talent isn’t available to spearhead objectives and generate results. M&A aside, by waiting to fill talent gaps, executives risk their companies’ survival.

To equip their teams with the needed skills, executives should take a two-pronged approach: upskilling existing employees and hiring external talent. They should strike a balance between the two. However, each situation is unique. In some cases, a company’s leadership might lean more toward one approach versus the other.

To upskill existing employees, leaders can start by gauging how interested employees are in learning new skills. Based on their interest level, leaders can carve structured, defined learning pathways for them — and put measures in place to assess their knowledge along the way. Those assessments will help leaders ensure that employees receive training, are developing competencies in key areas and will be able to apply their new skills when it’s time.

If leaders conclude that upskilling their existing workforce is not the best option for certain skills, they should coordinate with their HR departments to develop comprehensive recruitment strategies. Those strategies don’t have to be centered on full-time hiring, either. Contract positions can be an effective way for O&G companies to draw in needed talent.

Ultimately, the sooner O&G executives start closing their talent gaps, the better position they’ll be in to steer their companies in the right direction post-transaction.

For more information, call Jeremy Osterberger at (281) 538-9996.