EY - Power transactions and trends

Power transactions and trends

Global power and utilities mergers and acquisitions:
2013 review and 2014 outlook

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Brunhilde Barnard Lucio Teixeira David Lloyd Kenneth G. Smith Joseph Fontana
Brunhilde Barnard, EY Lucio Teixeira, EY David Lloyd, EY Kenneth G. Smith, EY Joseph Fontana, EY

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Trading houses drive activity as reform looms in Japan. Read more

Energy shift boosts US deal levels in an active year. Read more

2013 has been an exciting and active year in power and utilities transactions, with deal activity increasing over the year and volumes reaching a three-year high.

At 398 total deals with a value of US$125.4b over the year, transaction activity is showing signs of recovery. These numbers represent growth of 30.1% in deal volumes and 4.1% in deal value respectively, compared to 2012.

Global P&U deal value and volume Q4 2011-Q4 2013

EY - Global P&U deal value and volume  Q4 2011-Q4 2013

Source: EY analysis based on Mergermarket data

The considerable rise in deal volumes over the year was driven by:

  • Industry consolidation
  • Market reforms
  • Continued opportunities in developing countries

With many large transactions now in the pipeline, deal volumes are expected to increase throughout 2014.

Our recent Capital Confidence Barometer survey results point to capital being more available, with the C-suite showing a renewed interest in upstream and downstream acquisitions and a focus on innovation.

In an environment of wholesale price pressure in Europe and the US, utilities are keen to pursue cross-border transactions, where synergies can be exploited and returns can be increased through diversification.

Three dominant drivers behind power and utility transactions in 2013

Three drivers began to emerge in Q3 and Q4, which we expect to continue to drive activity in 2014:

  • Rebalancing - Utilities in developed markets are rebalancing their portfolios as they deal with low wholesale prices, increasing consumer price elasticity and regulatory intervention, leading to acquisitions upstream and downstream in the supply chain.
  • Reform – Reform initiatives by governments — often in relation to rising price levels — are leading to industry unbundling in some parts of the world such as Japan and, conversely, to vertical integration in regions with government-owned entities, such as Australia.
  • Emerging markets - Developing markets in Asia and Africa continue to receive large-scale inbound investment in response to government electrification programs. 

Transaction outlook for 2014

With the transformation agenda as the key discussion point in utility boardrooms, transactions are bound to flow into 2014. Expect cross-border deals to dominate the year as utilities look for growth beyond domestic boundaries.

  • US set for M&A opportunities in response to changing demand dynamics
  • Infrastructure build-out and capacity expansion will drive emerging markets investment
  • Regulatory and market reforms open up transaction opportunities
  • Cross-border activity to remain strong as investors focus on growth
  • Sustained pressure on utility balance sheets to continue to drive M&A in Europe