M&A appetite hits seven-year high in power and utilities sector

London, 25 May 2017

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  • 59% of executives expect to actively pursue acquisitions in next 12 months
  • Deal value momentum set to continue after reaching US$45.5b in Q1
  • Evolving government policy trends pose risks to future sector investment

Fifty-nine percent of power and utilities executive respondents expect to actively pursue an acquisition in the next 12 months, according to the latest biannual EY Power & Utilities Capital Confidence Barometer. That demonstrates a 12% increase in M&A appetite since the last Barometer (47%), and a seven-year high.

What’s more, survey results reveal that 89% of executives expect their deal pipeline to increase or remain stable in the next 12 months. This suggests deal momentum that characterized the beginning of the year is set to continue. The latest EY Power transactions and trends report – available today – supports this trajectory, showing that deal values remained steady in 2017 with a total of US$45.5b.

Matt Rennie, EY Global Power & Utilities Transactions Leader, says:

“The global power and utilities transaction environment in the first quarter of the year saw the trends established in 2016 endure. In developed countries, investors continued to seek assets that guaranteed secure returns, while in developing countries, the need for electrification and greenfield infrastructure drove investment.”

Transmission and distribution assets, together with renewable energy assets, attracted a combined US$35.6b in investment in Q1 – 78% of total deal flow. First quarter growth in deal value for renewable energy was higher than that recorded in any other market segment when compared with Q4 2016.

Looking ahead, more than half (53%) of power and utilities executives cited growth in market share and moving into new geographies as key drivers for pursuing M&A.

Traditional power and utility players are facing increased competition for market share from outside the sector. Digital transformation remains a priority for many seeking to add innovative capabilities, improve customer engagement and stay relevant in a changing market.

Geographically, the greatest share of first quarter global power and utilities deal value originated in the Americas (US$21b) and Asia-Pacific (US$15.1b) regions. Together, these regions contributed 80% of the quarter’s total M&A value. The Americas is likely to remain the top M&A destination as executives identified the US, Brazil and Canada within their top five targets for the next 12 months.

While deal activity is expected to remain strong throughout 2017, Power transactions and trends identifies how higher interest rates, a trend toward recovery in Europe’s power and utility market and significant shifts in the underlying economics of battery technology could see a change in investment profiles. In the Barometer, 68% of executives also identified geopolitical or emerging policy concerns as risks to growth.

Rennie says: “Government intervention in traditional power markets – that have a simple energy system of centralized generation – is typically predictable. But, as our energy systems become more complex, the impact of policy could be detrimental to inbound investment. Encouraging deals in areas like merchant generation, new technology and parallel sectors that will define the future of energy, first demands markets that attract investment.”

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Notes to Editors

About EY

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About EY’s Global Power & Utilities Sector

In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EY’s Global Power & Utilities Sector brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Sector team works to anticipate market trends, identify their implications and develop points of view on relevant sector issues. Ultimately, this team enables us to help you meet your goals and compete more effectively.

For more information, please visit ey.com/powerandutilities.

About the EY Global Capital Confidence Barometer

The EY Global Capital Confidence Barometer (CCB) is a biannual survey compiled by the Euromoney Institutional Investor Thought Leadership of more than 2,300 senior executives from large companies around the world and across industry sectors. This is the 16th semiannual CCB in the series, which began in November 2009; respondents for the 16th edition were surveyed in March and April 2017. Respondents represented 18 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, diversified industrial products, and construction and real estate. The objective of the Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve.

For more information on the Power & Utilities Capital Confidence Barometer, visit ey.com/ccb/powerandutilities.

About Power transactions and trends

The EY analysis and perspectives within Power transactions and trends are based on global financial releases and Mergermarket data, as well as global engagements conducted by EY member firms over the period 2012 to 2016. They provide an up-to-date assessment of outcomes and trends in the global utilities industry.