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Q1 2016

Power transactions and trends, Q1 2016

Diversification and disruption shape transactional activity

This Q1 2016 edition of Power transactions and trends reviews quarterly deal activity within the power and utilities (P&U) sector and forecasts the trends that will shape future mergers and acquisitions (M&A).

After hitting historic levels in 2015, M&A momentum continued in Q1 2016, with deal value reaching a five-year Q1 high of US$44.4b.

The quarter saw two themes becoming more present in M&A:

  1. Deal imbalance driving funds towards renewable and regulated assets: Companies keen to diversify amid an environment of low interest rates and depressed wholesale energy prices are competing for regulated network assets, stable retailing operations and power purchase agreement (PPA) backed renewables. Valuations for gas and electric transmission and distribution (T&D) assets remain high – in the Americas investors are willing to pay 40% premiums for electric and gas transmission and distribution (T&D) utilities. Demand for greenfield, long-term PPA (preferably sovereign backed) renewables projects is resulting in competitively low auction bids. A new record low was set in Dubai in May 2016, when 800MW of large scale solar received bids as low as US$30/MWh (without subsidies).
  2. Investment in energy services and disruptive assets: Declining revenue from electricity sales is also driving some utilities to explore cross-sector investment at an increased rate, particularly as a way to acquire new energy technology and the different products and services customers are demanding. We are seeing power and utilities companies either buying, partnering or acquiring stakes in the energy services, connected homes, distributed energy and battery storage space, in a trend that is driving increased M&A activity.

We see these factors leading to robust M&A activity within the world’s P&U sector through 2016. Read Matt Rennie’s blog to see how these trends are driving M&A.

Global P&U deal value and volume (Q1 2014–Q1 2016)

EY - Global P&U deal value and volume (Q1 2014–Q1 2016)

Global P&U deal value by region (US$b, Q1 2014–Q1 2016)

EY - Global P&U deal value by region (US$b, Q1 2014–Q1 2016)

Highlights

EY - Power transactions and trends: Highlights