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Americas

Power transactions and trends | Q1 2017

Renewables lead the way

Almost all (91%) of the Americas’ total deal value was inbound to the US and all top five deals involved Canadian investment in the US, including three in renewables.

Clean energy deals accounted for US$8.6b (41%) in regional deal value, more than any other segment. Despite some uncertainty around federal policy towards renewables, the segment is boosted by state-based renewable energy targets and continuing federal tax incentives. 

US interest rates remain low and future rises are predicted to be slow and steady. These conditions will drive a similar investment environment to that of 2016.

EY - Infographic

Q1 2017 transactional highlights

  • Renewable assets drive deal value and volume, with 18 deals accounting for US$8.6b in deal value.
  • The quarter’s largest deal was in T&D – Canadian utility AltaGas’s US$6.3b acquisition of US-based WGL Holdings.
  • Cross-border deals drive investment, with the US attracting most deals.
  • Focus on new technologies is increasing, with investors acquiring and taking stakes in battery and storage companies.

Americas deal value and volume, by segment

(Asset and corporate-level deals, Q1 2015–Q1 2017)

EY - Asset and corporate-level deals, Q1 2015–Q1 2017

Americas investment flows inbound and outbound by country (Q1 2017)

EY - Americas investment flows inbound and outbound by country (Q1 2017)*

Top 5 Americas deals, Q1 2017

EY - Top 5 Americas deals, Q1 2017

Valuations snapshot

The Americas P&U sector is currently trading at a premium of 9% to long-term average two-year forward estimates of EV/EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization), compared to a 0.5% premium in Q4. Further interest rate rises may create downward pressure on multiples in 2017.

  • T&D assets traded at 11x the two-year forward EV/EBITDA values, denoting a premium of 19% to the average valuation of the industry, and traded at a 6.7% premium to their long-term two-year forward price to earning (PE) ratios. While demand is driving high premiums, these assets’ high EV/EBITDA multiples may suggest they are overvalued.
  • Integrated utilities traded at a premium of 3% to two-year forward EV/EBITDA values of 7.9x, while the average long-term two-year forward PE ratio for these assets was 13.6x – denoting a 3% premium to long-term average valuations. As integrated utilities decrease their exposure to merchant generation, PE multiples are likely to increase.
  • Renewable energy assets traded at 18.7x the long-term two-year forward PE ratio in Q1, representing a discount of 7% compared to long-term valuations. In contrast, these assets traded at a premium of 44% for two-year forward EV/EBITDA ratios. This situation reflects a cautious approach by investors who are bearish on the stock value of pure-play renewables, despite the anticipated earnings of these utilities remaining strong.
  • IPP assets traded at a premium of 28% to their long-term two-year forward PE ratios at 30.9x, but at a discount of 17% to their long-term two-year forward EV/EBITDA estimates of 8.6x. The increase in long-term two-year forward PE estimates is driven by gas IPPs, signalling a potential undervaluation.

Average EV/EBITDA trading multiples for select utilities

(On FY2 consensus earnings per share (EPS) estimates, 2013–Q1 2017)

EY - On FY2 consensus  earnings per share (EPS) estimates, 2013–Q1 2017

Average PE trading multiples for select utilities

(On FY2 consensus earnings per share (EPS) estimates, 2013–Q1 2017)

EY - On FY2 consensus  earnings per share (EPS) estimates, 2013–Q1 2017

M&A capital outlook and investment hotspots

  • Coal to gas switching will increase in the US, as low shale gas prices make gas economically competitive with coal.
  • Wind energy investment remains bullish, with major projects underway to develop new wind power plants in the US and Canada.
  • Latin America will invest in T&D infrastructure, to facilitate electricity trade and increased electricity consumption.
  • Brazil will attract overseas investments, as more companies sell assets. The country attracted US$757m of brownfield investments in Q1.

EY Global Transaction Advisory Services (TAS) P&U contacts

Matt Rennie
Global TAS P&U Leader
Brisbane, Australia
+61 7 3011 3239

Stephanie Chesnick
US TAS P&U Leader
Houston, Texas, US
+1 713 750 8192

Mitch Fane
US Southwest TAS P&U Leader
Houston, Texas, US
+1 713 750 4897

Miles Huq
US Northeast TAS P&U Leader
Baltimore, Maryland, US
+1 410 783 3735

Robert Leonard
US Southeast TAS P&U Leader
Charlotte, North Carolina, US
+1 704 335 4236

Robert A Jozwiak
US Central TAS P&U Leader
Chicago, Illinois, US
+1 312 879 3461

Gerard McInnis
Canada TAS P&U Leader
Calgary, Alberta, Canada
+1 403 206 5058

Lucio Teixeira
South America TAS P&U Leader
Sao Paulo, Brazil
+55 11 2573 3008

Rafael Aguirre Sosa
MeCAR TAS P&U Leader
México, D.F., Mexico
+52 55 5283 8650