Power transactions and trends
Global power and utilities mergers and acquisitions:
2013 review and 2014 outlook
|Brunhilde Barnard||Lucio Teixeira||David Lloyd||Kenneth G. Smith||Joseph Fontana|
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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
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.