EY - Power transactions and trends, Q1 2014

Power transactions and trends

Global power and utilities mergers and acquisitions review, Q1 2014

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Three–year high for Q1 deals

After a transformative 2013, when global utilities rebalanced asset portfolios and business models toward new growth areas, Q1 2014 kicked off on a promising note.

Deal value for Q1 was 11% higher than for Q1 2013 and 8% higher than for Q1 2012 — the highest quarterly result since Q1 2011. 

Global P&U deal value and volume, Q1 2012—Q1 2014

EY - Global P&U deal value and volume Q1 2012 - Q1 2014

Quarterly deal activity was driven by:

  • Privatization and divestments in Europe
  • Merchant asset sales in the US
  • Renewable energy deals in Latin America
  • Market reforms and infrastructure build-out in Africa and Asia Pacific

Portfolio optimization and geographic diversification drive global M&A

Emerging markets continue to receive significant capital inflows from Western Europe and other developed nations, where utilities continue to face slow growth or negative price trends. This movement is boosted by governments keen for capital. Countries such as India and Brazil are taking steps to introduce regulatory reforms to create an attractive environment for foreign and private investment.

The dual focus on growth and portfolio optimization will spur M&A activity across emerging markets. This is reflected in EY’s recent Capital Confidence Barometer survey report: 72% of acquisition capital will be deployed to emerging markets — both BRIC and non-BRIC — with China, the US, India, Brazil and Singapore the most likely investment targets.

Renewable energy assets registered a strong result for the quarter, showing the increasing importance of the segment in the global generation mix. While Europe remains the hot spot for M&A, emerging nations are likely to witness the next wave of clean energy transactions. We expect financial investors to be first in line for these prized assets.

Reforms to drive corporate strategies

Market reform and unbundling will form the basis of corporate strategies this year in countries such as India, Mexico, Japan and Greece as they gear up to liberalize their energy markets. This presents M&A opportunities across the value chain.

We anticipate an exciting year ahead, with deal activity registering new heights compared with 2013.

Key findings, Q1 2014

  • Deal value for Q1 14 was 11% higher than for Q1 13 and 8% higher than for Q1 12 — the highest quarterly result since Q1 11
  • Financial investor deal value doubled, reaching US$14.3b, compared with Q4 13; average deal size of US$950m was the highest in the last three years; expect momentum to continue as infrastructure and pension funds look to diversify investment portfolios
  • Renewables deal activity reached a three-year high, surpassing generation and T&D deal value and volume; Europe remains the hot spot, with emerging nations catching up fast
  • Water and waste treatment segment likely to witness increased M&A activity as utilities gear up to optimize asset portfolios to drive revenue growth
  • Europe’s deal value witnessed 42% growth quarter-on-quarter, led by large divestments and privatization efforts



Global P&U deal value and volume, Q1 2012—Q1 2014

EY - Global P&U deal value and volume Q1 2012 - Q1 2014


Source: EY analysis based on Mergermarket data