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Europe

Power transactions and trends | Q2 2017

Government privatization drives value, renewables boost volume

In Q2, deal activity in Europe’s power and utilities (P&U) sector was driven by a large number of low-value renewables deals, which reduced the region’s overall average deal value from US$325m in Q1 to US$295m.

Diversification toward other markets and into renewables and disruptive technologies is starting to pay off for some traditional European utilities, with Iberdrola and Enel indicating improved operating results. Despite these positive signs, ongoing political uncertainty in the region will continue to impact investment.

EY - Infographic

Q2 2017 transactional highlights

  • High number of low-value renewables deals, with 29 deals forming 55% of total deal volume.
  • Investment in networks drives deal value, with T&D asset sales increasing to US$4.3b, 40% of deal value.
  • Outbound investment rebounds, with 11 outbound deals (up from four in Q1).
  • UK and Spain remain deal hotspots, accounting for 27% and 26%, respectively, of total deal value.
  • Increasing focus on battery storage and new technology, including Enel’s acquisition of the UK-based operator of the Tynemouth stand-alone battery energy storage system.
  • IPP investment moves in favor of gas, as corporate investors from Eastern Europe and the US acquired 3.9 GW of generation assets.

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

(asset and corporate-level deals)

EY - Europe deal value and volume, by segment

Source: EY analysis based on Mergermarket data

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

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

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

Top five Europe deals (Q2 2017)

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

EY - Top five Europe deals - Q2 2017

Source: EY analysis based on Mergermarket data.

Valuations snapshot

Overall sector valuation increased to trade at a two-year forward EV/EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization) ratio of 8.3x in Q2, compared to a long-term average of 7.7x. The two-year forward price-to-earnings (P/E) ratio is 15.7x, a premium of 31% compared to the long-term average of 12x.

  • T&D assets traded at a two-year forward EV/EBITDA ratio of 10.9x, compared to a long-term ten-year average of 9.4x, a premium of 16%. The two-year forward P/E ratio increased 9.7% from Q1, trading at 14.8x, a premium of 10% to the long-term average of 13.4x.
  • Integrated utilities traded at a two-year forward EV/EBITDA ratio of 7.1x in Q2, compared to a long-term ten-year average of 6.8x. The two-year forward P/E ratio for the segment traded at 12.6x, a premium of 10% compared to the long-term average of 11.5x.
  • Renewable energy assets traded at a two-year forward EV/EBITDA ratio of 7x (up from 6x in Q1), in line with the long-term average. The two-year forward P/E ratio traded at 19.9x, a 79% premium to the long-term average of 11.1x.
  • Traditional generation companies are challenged by the declining share of thermal energy and an increasing focus on clean energy.

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

  • European investors seek opportunities in South America, with upcoming activity in Peru, Brazil, Mexico and Chile.
  • PPA-backed wind assets in development, after both Russia and Germany awarded wind energy projects in Q2.
  • Privatization of assets to continue as Turkey plans to sell stakes in hydroelectric plants.
  • Spain remains an investment hotspot, with tenders for 3 GW of solar and wind soon to open to bidders.
  • UK focuses on emerging technology, including battery storage and electric vehicles.

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

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

Arnaud De Giovanni
Head of TAS Power & Utilities, EMEIA
Paris, France
+33 1 55 61 04 18
arnaud.de.giovanni@fr.ey.com

Remigiusz Chlewicki
Central & Southern Europe TAS
Power & Utilities Leader
Warsaw, Poland
+48 22 557 7457
remigiusz.chlewicki@pl.ey.com

René Coenradie
BeNe TAS Power & Utilities Leader
Rotterdam, Netherlands
+31 88 407 8777
rene.coenradie@nl.ey.com

Edgars Ragels
CIS TAS Power & Utilities Leader
Moscow, Russia
+7 495 755 9724
edgars.ragels@ru.ey.com

Umberto Nobile
Mediterranean TAS Power & Utilities Leader
Milan, Italy
+39 02 8066 93744
umberto.nobile@it.ey.com

Martin Selter
GSA TAS Power & Utilities Leader
Berlin, Germany
+49 30 25471 21284
martin.selter@de.ey.com

Stéphane Kraft
FraMaLux TAS Power & Utilities Leader
Paris, France
+33 1 55 61 09 28
martin.selter@de.ey.com

Michael Bruhn
Nordics TAS Power & Utilities Leader
Copenhagen, Denmark
+45 2529 3135
michael.bruhn@dk.ey.com

John Curtin
UKI TAS Power & Utilities Leader
London, UK
+44 20 7951 6257
jcurtin@uk.ey.com