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Americas

Power transactions and trends | Q2 2017

Deal value dips to a four-year low

Deal value in the Americas power and utilities (P&U) sector in Q2 dropped 72% to US$5.9b — a four-year low. US deal value dipped 77% to US$4.4b.

Deal volume increased 25% to a five-quarter high of 40 deals with an average deal value of just US$269m — the lowest of all regions. As in other regions, the US P&U sector sees an abundance of capital chasing a shrinking number of high-value, low-risk deals.

US federal policy changes around renewables have increased the risk associated with greenfield development of these assets, despite ongoing state-based support. Going forward, all eyes will be on how renewable energy developers respond to this complex operating environment, and whether their strategies pay off. The US is a market to watch as what happens here will determine investment flow in the entire region.

EY - Infographic

Q2 2017 transactional highlights

  • Large number of low-value deals – deal volume increased to 40 deals but average deal value dipped to US$269m, compared to US$954m in Q1.
  • More M&A in water and wastewater, including the region’s largest deal of the quarter.
  • Investment in gas generation continues, with five deals accounting for US$440m.
  • Renewables drive deal value and volume, as 17 clean energy deals contributed almost half of total deal value.
  • Higher US interest rates influence buyers, with deal value from financial investors dropping 87%.
  • Cross-border investment declines, with most deals in the US to domestic buyers.

Americas deal value and volume, by segment (Q2 2015–Q2 2017)

(asset and corporate-level deals)

EY - Americas deal value and volume by segment

Source: EY analysis based on Mergermarket data.

Americas investment flows inbound and outbound by location (Q2 2017)

EY - Americas investment flows inbound and outbound by country (Q2 2017)

* Note: Percentages may not add to 100% due to rounding.

Top five Americas deals (Q2 2017)

All deal values indicated are disclosed enterprise values comprising equity and debt components.

EY - Top five Americas deal - Q2 2017

Source: EY analysis based on Mergermarket data.

Valuations snapshot

The Americas P&U sector is trading at a two-year forward EV/EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization) ratio of 8.5x, in line with the long-term average, but down 7.4% from Q1. The price-to-earnings (P/E) ratio saw little movement, trading at 20.2x compared to 20x in Q1, which represents a premium of 10% compared to the long-term average of 18.4x.

  • T&D assets traded at a two-year forward EV/EBITDA ratio of 9.8x, a reduction of 10.5% compared to Q1. This is in line with the long-term average of 10.1x. The two-year forward P/E ratio pushed slightly higher to trade at 17.3x, a premium of 10% compared to the long-term average of 15.7x.
  • Integrated utilities showed little movement from Q1, trading at a two-year forward EV/EBITDA average of 7.9x, in line with the long-term average. The two-year forward P/E ratio traded at 12.7x, a 6.4% drop from Q1, and a discount to the long-term average of 13.2x.
  • Renewable energy assets traded at a two-year forward EV/EBITDA of 8.6x in Q2, a 14% premium to the long-term average of 7.5x. The P/E ratio for these assets was in line with the long-term average multiple at 20.2x.
  • IPP asset valuations increased to trade at a two-year forward EV/EBITDA of 7.7x, but this is still a discount to the long-term average of 8.5x. P/E ratios remained high, trading at 30.6x (compared to the long-term average of 24.6x), driven by gas IPPs.

Average EV/EBITDA trading multiples for select utilities

(On FY2 consensus earnings-per-share (EPS) estimates, 2010–Q2 2017)

EY - Average EV-EBITDA trading multiples for select utilities

Note: The valuations analysis only contains pure-play publicly listed companies in each relevant market segment.

Sources: Bloomberg and EY analysis

Average P/E trading multiples for select utilities

(On FY2 consensus earnings-per-share (EPS) estimates, 2011–Q2 2017)

EY - Average P-E trading multiples for select utilities

Note: The valuations analysis only contains pure-play publicly listed companies in each relevant market segment.

Sources: Bloomberg and EY analysis

M&A capital outlook and investment hotspots

  • Institutional investors drive demand for renewables, with expectations that demand for these assets will soon outstrip supply.
  • Continued T&D investment in Latin America, including new infrastructure projects in Chile.
  • Increasing greenfield investment in Mexico, including projects in solar and wind.

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

Matt Rennie
Global TAS P&U Leader
Brisbane, Australia
+61 7 3011 3239
matthew.rennie@au.ey.com

Stephanie Chesnick
US TAS P&U Leader
Houston, Texas, US
+1 713 750 8192
stephanie.chesnick@ey.com

Mitch Fane
US Southwest TAS P&U Leader
Houston, Texas, US
+1 713 750 4897
mitchell.fane@ey.com

Miles Huq
US Northeast TAS P&U Leader
Baltimore, Maryland, US
+1 410 783 3735
miles.huq@ey.com

Robert Leonard
US Southeast TAS P&U Leader
Charlotte, North Carolina, US
+1 704 335 4236
rob.leonard@ey.com

Robert A Jozwiak
US Central TAS P&U Leader
Chicago, Illinois, US
+1 312 879 3461
rob.leonard@ey.com

Gerard McInnis
Canada TAS P&U Leader
Calgary, Alberta, Canada
+1 403 206 5058
gerard.mcinnis@ca.ey.com

Lucio Teixeira
South America TAS P&U Leader
Sao Paulo, Brazil
+55 11 2573 3008
lucio.teixeira@br.ey.com

Rafael Aguirre Sosa
MeCAR TAS P&U Leader
México, D.F., Mexico
+52 55 5283 8650
rafael.aguirre@mx.ey.com