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Europe

Power transactions and trends | Q3 2017

Megadeals behind big increase in deal value

In Q3, deal value in Europe’s power and utilities (P&U) sector increased to US$16.9b, with almost all value contributed by three billion-dollar-plus deals, involving generation, distribution and wind assets.

Besides the headline-making Uniper takeover, Europe’s baseline deal flow is driven by low-value renewables transactions, as well as asset privatizations. During Q3, the Turkish Government sold off 38 MW of hydro assets while France began an extensive privatization program aimed at redeploying state funds into innovative energy start-up companies.

EY - Infographic

Q3 2017 transactional highlights

  • Biggest deal of the quarter in generation – Fortum’s US$11.5b acquisition of a 46.7% stake in Germany’s Uniper SE.
  • Corporate investors target larger deals, with these buyers conducting 42 transactions with an average value of US$617m, up 157% from Q2.
  • Decreasing investment in networks, as value from these deals halved from last quarter to reach US$2.1b in Q3.
  • Germany was the deal hotspot, hosting nine deals totaling US$12.9b.
  • More investment in wind energy, with 15 wind deals contributing 85% of renewables deal value.
  • High number of low-value renewables deals drove much of Q3 deal volume.

European deal value and volume, by segment

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

EY - Europe deal value and volume, by segment

Source: EY analysis based on Mergermarket Data

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

(All deals are announced deals, and the values indicated are disclosed enterprise values comprising equity and debt components.)

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

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

Top five Europe deals (Q3 2017)

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

EY - Top 5 Europe deals, Q3 2017

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

Source: EY analysis based on Mergermarket data.

Valuations snapshot

Overall, the sector traded at a two-year forward EV/ EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization) ratio of 8.3x, a premium of 6% above the long-term average of 7.8x. The sector traded at a two-year forward price-to-earnings (P/E) multiple of 15.8x, an 18% premium above the long-term forward multiple of 13.4x.

  • T&D assets traded at a two-year forward EV/EBITDA ratio of 10.9x, down 6.7% from Q2, but a premium of 11% to the long-term average of 9.6x. The two-year forward P/E ratio dropped 4.3% from Q2 to 14.2x, but traded at a 5% premium compared to the long-term average of 13.5x.
  • Integrated utilities traded at a two-year forward EV/EBITDA ratio of 7.1x compared with a long-term average of 6.8x. The two-year forward P/E ratio traded at 13.6x, a premium of 18% compared with the long-term average of 11.6x.
  • Renewable assets traded at a two-year forward EV/EBITDA ratio of 7x, in line with the long-term average. The two-year P/E multiple decreased 2% to 19.6x, a 30% premium to the long-term average P/E multiple of 15.1x.
  • IPP assets are still failing to find premiums, as evidenced by Fortum’s takeover bid of US$22 per share for Uniper – just a 5% premium to its share price.

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, 2010–Q1 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, 2011–Q3 2017)

EY - On FY2 consensus earnings per share (EPS) estimates, 2011–Q1 2017

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

  • Investment in wind assets to continue, with Germany to develop 1 GW of onshore wind capacity and Scottish Power Renewables installing 1 GW offshore wind capacity in the UK.
  • Increased interest in electric vehicles and battery technology, including a US$320m UK Government fund to develop and manufacture battery storage.
  • More sector convergence, as companies invest across segments and geographies.
  • Spain continues to attract investors, as the Government intensifies efforts to meet its 2020 target to source 20% of energy from renewables.
  • UK to boost renewables investment, with the launch of the £2.5b (approximately US$3.3b) Clean Growth Strategy.

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

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

Arnaud De Giovanni
Head of TAS P&U, EMEIA
Paris, France
+33 1 55 61 04 18

Remigiusz Chlewicki
Central & Southern Europe TAS
P&U Leader
Warsaw, Poland
+48 22 557 7457

Edgars Ragels
Commonwealth of Independent States TAS P&U Leader
Moscow, Russia
+7 495 755 9724

Umberto Nobile
Mediterranean TAS P&U Leader
Milan, Italy
+39 02 8066 93744

Martin Selter
Germany, Switzerland and Austria TAS P&U Leader
Berlin, Germany
+49 30 25471 21284

Stéphane Kraft
Western Europe and Maghreb TAS P&U Leader
Paris, France
+33 1 55 61 09 28

Michael Bruhn
Nordics TAS P&U Leader
Copenhagen, Denmark
+45 2529 3135

John Curtin
UK & Ireland TAS P&U Leader
London, UK
+44 20 7951 6257