Power & Utilities, October 2013 – April 2014

Capital Confidence Barometer

Key findings

M&A - Momentum builds as transactions rebound

Economic outlook - Confidence rises to two-year high

Access to capital - Credit availability drives momentum

Growth strategies - Re-evaluation of traditional business model drives growth focus

M&A outlook - Activity improving, more and larger deals expected

EY - Capital Confidence Barometer
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Confidence improving as utilities target growth

Our ninth Capital Confidence Barometer indicates that confidence in the global economy is at its highest point in two years.

Sixty-seven percent of the 203 global power and utility (P&U) executives surveyed believe the economy is improving, compared with 47% six months ago. This is reflected in a significant increase in deal volumes and more large deals.

With the alignment of core fundamentals for deal-making — improving economic sentiment; enhanced credit availability; and changing political, regulatory and commodity fundamentals — we expect to see utilities continue to re-evaluate traditional models, narrow their focus on core operations and optimize asset portfolios. — Matt Rennie, Global Transactions Power & Utilities Leader

Half of P&U executives say growth is their top priority, up from 40% a year ago. Ninety-three percent consider credit either stable or improving — the highest levels in two years.

We expect this alignment of core fundamentals for deal-making — economic confidence, credit availability and focus on growth — to favor higher transactional activity.

Confidence in corporate earnings has dropped, reinforcing our view that weak energy demand and depressed wholesale energy prices, particularly in Europe, combined with over-leveraged balance sheets are creating pressure on earnings.

Brazil, India, Canada, South Africa and Chile are the top five investment destinations, reflecting significant opportunities for utilities to find value.

As utilities continue to reshape their portfolios and look to newer markets and services, we expect a more robust M&A climate into the next 12 months.