Global power and utilities’ appetite for M&A on the rise in 2015

2 mins read

The FINANCIAL — Transaction activity in the global power and utilities (P&U) sector is gaining momentum with 45% of companies ready to pursue acquisitions in the next 12 months, according to EY’s 12th biannual Power & Utilities Global Capital Confidence Barometer.

Out of 1,600 surveyed global executives in 54 countries, 74 respondents are from the P&U companies with more than 64% at CEO, CFO and other C-suite levels. 

45% of global power and utilities executives ready to transact in next 12 months
79% of executives focused on small- and mid-cap deals of less than US$250m
Innovative investments and energy reform opportunities remain top of mind

After overwhelming growth in 2014, with activity reaching a four-year high, transactions are set to reach similar levels in 2015. EY’s Power transactions and trends report reveals how activity reached a three-year high in Q1 with over a hundred deals amounting to US$29.7b.

What’s more, the Barometer highlights executives’ growing confidence in the global economy and in the number and quality of transaction opportunities available in the sector. Together these forces are setting the stage for a robust M&A market in the year ahead.

Matthew Rennie, EY’s Global Transactions Leader for Power & Utilities, says:

“Appetite for M&A is steadily increasing in the sector. Consolidation in the US and China, divestments driven by debt reduction and portfolio optimization in Europe, attractive renewable energy assets and energy reforms continue to generate new transaction opportunities. Now, with increased confidence in the global economy and corporate earnings, companies are ready to take hold of those opportunities and transact.” 

See also  Wellness programs help employees and their companies

Innovative investments take priority with executives

The P&U sector is undergoing immense change and, to stay relevant and competitive, utilities are adopting an innovative approach to transactions. Sixty-four percent of survey respondents identified innovative investments — including acquiring relevant energy services and technology firms — as the primary focus of planned M&A.

Small and mid-cap deals set to dominate activity

The Barometer shows the majority of utilities (79%) are focused on small- and mid-cap deals of less than US$250m over the next 12 months as they look to build new capabilities to keep pace with today’s changing business environment. 

Energy reform and unbundling attracts investors to new markets

An overwhelming proportion of P&U executives (82%) are looking beyond their domestic market for acquisition opportunities. Energy reforms and unbundling initiatives, in particular, are attracting interest from utility investors across the globe.

Rennie says: “Governments around the world are adopting energy reform and unbundling initiatives to improve efficiencies and increase investment. These efforts are opening up energy markets to new competition — and transaction opportunities. Japan has welcomed non-conventional players into the market with close to 500 new power producers and suppliers now registered.”  

Valuation gap remains at moderate levels

Sixty-percent of P&U executives agree the valuation gap between buyers and sellers currently sits between 10% and 25%. That being said, 75% expect the gap to remain stable over the next 12 months and 76% expect asset prices to remain at current levels. That’s translating into a positive climate for deal-making. Commodity price volatility and ongoing conflicts in West Asia and Eastern Europe could, however, lead to some uncertainty in asset pricing. 

See also  Customer dissatisfaction can erode merger benefits

Rennie says: “The power and utilities sector is evolving beyond the local business model. Utilities are looking to expand their footprint around the world with the help of strategic transactions. First quarter activity was just the beginning of an exciting M&A market in 2015.”

 

Leave a Reply