Power & Utilities, April – October 2014

Capital Confidence Barometer

Key findings

M&A - Heightened appetite for acquisitions to fuel deal activity

Economic outlook - Economic confidence remains high

Access to capital - Credit availability drives momentum

Growth strategies - Capital optimization dominates utilities' growth agenda

EY - Capital Confidence Barometer
  • Share

Confidence continues to improve, with utilities targeting investment in new markets and technology

Increased economic optimism and credit availability, as well as a dual focus on growth and portfolio optimization, will spur merger and acquisition (M&A) activity across emerging and mature markets.

“Sustained global economic confidence, backed by increased access to capital, will spur deal activity.”. — Matthew Rennie, Global Transactions Power & Leader

Our latest Power & Utilities (P&U) Capital Confidence Barometer reveals continued optimism in the global economy, with 61% of the 153 global P&U executives surveyed seeing improvement. This translates into healthy deal activity, with Q1 2014 providing the highest first-quarter deal values in three years.

For 33%, economic optimism accompanies intentions to make acquisitions in the next 12 months, up from 28% six months ago. Moreover, credit availability is stable or improving, according to 92%, with 47% expecting to finance acquisitions with debt.
Increased appetite for acquisitions and preference for debt over cash seem likely to spur more large-value transactions in 2014. Activity will be further sustained by:

  • Consolidation in the US and Asia-Pacific
  • Divestments and privatizations in Europe
  • Market and regulatory reforms globally

The emerging economies remain core to P&U growth strategies, with 72% intending to deploy acquisition capital in these markets. P&U companies' top five investment destinations are:

  • China
  • The US
  • India
  • Brazil
  • Singapore

Skills gaps and competition for talent threaten the sector. For 54%, this is likely to impact business strategies in the next 12 months, while 48% expect it to influence acquisition strategies.

As the P&U sector transforms into a customer-oriented and technologically driven industry, corporate strategies will increasingly hinge on the ability to attract and acquire the right skills.