EY: Power & Utilities Sector M&A Interest at 7-Year High

89% of survey respondents expect their deal pipelines to either stay steady or rise in the next 12 months.

Executives are looking for more mergers and acquisition deals in the power and utilities sector, with M&A interest at a seven-year high, according to an EY survey. The global consulting firm reports that 59% of power and utilities sector executives expect to actively look out for acquisitions in the next 12 months.

Deal values are at a steady total of $45.5 billion for 2017, and 89% of the respondents expect their deal pipelines to either stay steady or rise in the next 12 months. According to Matt Rennie, EY global power & utilities transactions leader, “The global power and utilities transaction environment in the first quarter of the year saw the trends established in 2016 endure. In developed countries, investors continued to seek assets that guaranteed secure returns, while in developing countries, the need for electrification and greenfield infrastructure drove investment.”

Most of the deal flow in the first quarter sprang from “transmission and distribution” assets, which together with renewable energy assets accounted for about 78% of the total deal flow during the period, at $35.6 billion. The renewable energy sector saw the biggest growth in deal value of any market segment, compared to the fourth quarter of 2016.

These executives (53%) point to a desire to grow their market shares, or move into new geographic areas, as a driving motivation for pursuing M&A activity. With rising competition for market share from outsiders, power and utilities sector executives are focused on “digital transformation” as a means of being innovative and growing customer engagement.

The Americas and Asia-Pacific were the regions that accounted for the highest share of the first quarter’s power and utilities global deal value in the first quarter, at $21 billion and $15.1 billion, respectively. These two regions together made up 80% of 1Q deal value. Looking ahead, these executives see the Americas remaining a hot spot for M&A activity, with the US, Brazil, and Canada all ranking in the top five target destinations for the coming 12 months.

Factors that could influence the profile of M&A investment for 2017 include higher interest rates, recovery in the European power and utility market, and “significant shifts in the underlying economics of battery technology.” Many executives (68%) are also mindful of geopolitical or “emerging policy concerns” as risks that could impact growth. 

EY’s Rennie says, “Government intervention in traditional power markets – that have a simple energy system of centralized generation – is typically predictable. But, as our energy systems become more complex, the impact of policy could be detrimental to inbound investment. Encouraging deals in areas like merchant generation, new technology, and parallel sectors that will define the future of energy, first demands markets that attract investment.”










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