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Americas

Power transactions and trends | Q3 2017

Distressed asset sales push deal value to two-year high

Q3 deal value in the Americas power and utilities (P&U) sector was the highest since 2015, with five megadeals contributing 96% of total deal value.

The top two deals involved distressed assets, highlighting sustained market fundamentals, including flat demand and cheap natural gas, and reveal increasing industry consolidation. This is occurring against a backdrop of regulatory scrutiny focused on governance, ring-fencing provisions and the independence of directors. Despite this friction, transactional activity in the sector is heating up.

EY - Infographic

Q3 2017 transactional highlights

  • Megadeals boost average deal size to US$2.4b in Q3 from US$269m in Q2.
  • Most value contributed by transmission and distribution (T&D) and generation deals - 74% of total regional deal value.
  • “Others” deal value increases to US$13.8b in Q3, with most of these transactions in integrated utilities.
  • Investment in renewables drops 94% from Q2 to US$180m.
  • Outbound investment recovers, to US$9.4b, boosted by $US6.3b of Canadian investment.

Americas deal value and volume, by segment

(announced asset and corporate-level deals, Q3 2015-Q3 2017)

EY - Asset and corporate-level deals, Q3 2015–Q3 2017

Investment activity in Americas by country, (Q3 2017)*

EY - Americas investment flows inbound and outbound by country (Q3 2017)*

Top five Americas deals (Q3 2017)

All deals are announced deals, and the values indicated are disclosed enterprise values comprising quity and debt components.

EY - Top 5 Americas deals, Q1 2017

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

Source: EY analysis based on Mergermarket data.

Valuations snapshot

The sector traded at a two-year forward EV/EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization) ratio of 8.7x, a 2% premium to the long-term average of 8.5x. The price-to-earnings (P/E) ratio traded at 22.6x, a premium of 22% compared with the long-term average of 18.6x.

  • T&D assets are trading at a two-year forward EV/EBITDA ratio of 9.6x, a discount of 4% from the long-term average of 10.0x. The two-year forward P/E ratio stood at 17.2x in Q3, a premium of 9% compared with the long-term average of 15.8x.
  • Integrated utilities valuations traded at a two-year forward EV/EBITDA average of 7.9x, a 1% premium to the long-term average of 7.8x. The two-year forward P/E ratio traded at 12.9x, an increase of 2% from Q2.
  • Renewable energy assets traded at a two-year forward EV/EBITDA of 9.0x in Q3, a 5% premium to Q2 and an 18% premium to the long-term average of 7.6x. The P/E ratio increased to 20.6x compared to 20.2x in Q2, a premium of 3% to the long-term average multiple at 20.1x.
  • IPP assets valuations increased 4.3% to trade at a two-year forward EV/EBITDA of 8.0x, a 6% discount to the long-term average of 8.5x. P/E ratios increased 29.5% from Q2, trading at 39.7x – compared with the long-term average of 25.4x.

Average EV/EBITDA trading multiples for select utilities

(On FY2 consensus earnings-per-share estimates, 2011–Q3 2017)

EY - On FY2 consensus  earnings per share (EPS) estimates, 2011–Q3 2017

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 estimates)

EY - On FY2 consensus  earnings per share (EPS) estimates

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

  • More greenfield investment in renewables, including plans by Invenergy and General Electric to build the US’s biggest wind farm.
  • Increasing interest in batteries, with Duke Energy Florida investing US$6b in solar, smart meters, grid modernization and batteries.
  • Argentina emerges as renewables hotspot, with new regulations allowing large power consumers to sign contracts to meet their renewable energy obligations expected to spur US$6b of clean energy investment over three years.
  • Foreign investors seek Brazilian assets, as the Government plans to privatize its largest utility and invest US$943m in hydro projects.

EY Americas 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
Latin America South TAS P&U Leader
Sao Paulo, Brazil
+55 11 2573 3008

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