Energy System Flexibility in the EU: How M&A Deal Types Influence Firm Value and Market Response in the EU Energy Sector (2015–2024)?

Abstract

This academic paper examines how different types of mergers and acquisitions (M&A) in the European energy sector affect investor reactions and firm performance, with a particular focus on innovations that support greater flexibility in energy systems. The study analyzes 320 completed M&A deals between 2015 and 2024, categorized into three groups: Homogeneous (e.g., wind-to-wind), Heterogeneous-Renewable (e.g., wind-to-solar), and Heterogeneous-Smart Energy Systems (e.g., wind-to-storage or grid technologies). An event study methodology is used to measure abnormal stock returns over different time horizons surrounding each deal announcement. Both the Fama-French three-factor model and the Capital Asset Pricing Model (CAPM) are used to deliver robust findings. The findings show that Homogeneous M&As always generate positive market reactions, potentially because they are simpler to integrate and have more transparent strategic risk. Contrarily, Heterogeneous-Renewable deals provide negative or statistically insignificant returns, indicating investors are risk-averse to the technological and operational fit of such transactions. Smart Energy System M&As are general, associated with positive abnormal returns in the short and medium terms, albeit findings vary depending on the asset pricing model used. This indicates that investors have faith in these technologies, even if some uncertainty remains around their financial impact. he analysis also considers the influence of acquirer characteristics and deal size. Bigger deals are found to be more pessimistic, especially in the days immediately following the announcement. Overall, the findings highlight that future investments in the energy sector should go beyond simply adding renewable capacity. Attention should also be paid to improving how the energy system functions. Smart energy technologies may play a key role in this by increasing grid flexibility and improving coordination between different parts of the system.