May 2015 | 12th edition
Power & Utilities Capital
Conf idence Barometer
Innovative strategies underscore acquisition trends
Our latest Power & Utilities: Global Capital Confidence Barometer reveals a steady increase in M&A appetite, with 45% of power and utilities (P&U) executives planning to actively pursue acquisitions in the next 12 months.
This sentiment follows a strong 2014, where M&A activity in the sector achieved record levels — total deal value (US$177.1b) and volume (474 deals) climbed to four- and five-year highs, respectively. This year also started on a positive note, with Q1 2015 recording the highest first-quarter total deal value of the last four years.
Survey results reveal an enhanced optimism in global economy. Several key markets across both developed and developing regions recorded healthy economic growth rates. P&U executives report confidence in leading market indicators, including corporate earnings, market stability and credit availability. We expect this optimism in the market to support a high level of M&A activity in 2015.
It’s clear that the transformation of the P&U sector is reflected in the M&A strategies of utilities. We are seeing an increased focus on customer-centric, technology-oriented and decentralized business models and growing competition from non-traditional players.
Utilities are looking to build capabilities beyond conventional business strategies to stay relevant and compete in this changing environment. P&U executives have expressed a strong preference for innovative acquisitions — 64% of respondents say that their next planned M&A activity is likely to be outside their core businesses.
We expect emerging markets, such as Latin America, Africa and Asia, to continue attracting interest from investors chasing growth. In developed markets, the pursuit of steady income from renewables and regulated network assets will also drive acquisitions in the near term. A focus on consolidation in large markets, such as the US and China, as well as ongoing and planned reforms in markets across the globe, are expected to make 2015 a robust year for transactions.
Macroeconomic environment: Increased optimism in the global economy and a positive outlook for leading market indicators are expected to foster a robust P&U M&A environment.
Corporate strategy: Cost reduction remains the priority, even as utilities pursue growth through innovative strategies.
M&A outlook: The significant growth in 2014 is expected to continue within the P&U M&A market during 2015. The sector has started the year on a positive note, with Q1 registering the highest first-quarter total deal value of the last four years.
About this survey
The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas — EY’s framework for strategically managing capital.
It is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel comprises select global EY clients and contacts and regular EIU contributors.
- In February and March, we surveyed a panel of more than 1,600 executives in 54 countries; more than 850 were CEOs, CFOs and other c-level executives, and more than 73 were from the power and utilities (P&U) industry.
- P&U companies’ annual global revenues ranged from less than US$500m (21%); US$500m–US$999.9m (31%); US$1b–US$2.9b (14%); US$3b–US$4.9b (14%) and greater than US$5b (11%).
- Global company ownership was publicly listed (64%), privately owned (27%), government/state-owned (5%) and family-owned (4%).