Power and utilities deal value hits two-year high as confidence soars

London, 16 November 2017

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  • Q3 deal value climbs to US$74.3b, driven by a large uptick in the Americas
  • 79% of respondents say global economy is improving vs. 60% six months ago
  • 51% intend to actively pursue acquisitions in the next 12 months amid rising investor expectations

Deal value across the global power and utilities (P&U) sector climbed to a two-year high in Q3 2017, according to the latest EY Power transactions and trends report. This was driven largely by outstanding increases in mergers and acquisitions (M&A) in the Americas (+798%) and in Europe (+60%).

The Americas saw P&U deals reach US$53b, nine times the value recorded in Q2 2017 and the highest since Q3 2015, propelled by five megadeals representing 96% of the region’s deal value. Meanwhile, better-than-expected economic activity in Europe saw Q3 deal value increase to US$16.9b, up 60% from US$10.6b in Q2.

The biannual EY Power and Utilities Capital Confidence Barometer (CCB) indicates that this deal momentum is set to continue, with 79% of executives expecting the global economy to improve in the next 12 months and 51% preparing to actively pursue acquisitions. A majority (99%) of executives also expect corporate earnings to improve or to remain the same.

The CCB also finds that greater confidence around credit access and market stability is expected to drive investments and dealmaking intentions. More than half (55%) of executives now anticipate improvement in capital market conditions, compared with just 34% six months ago.

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

“With unanticipated levels of M&A activity across the power and utilities sector, particularly in the Americas and Europe, all major engines of global dealmaking are now moving firmly upward. Deals in Q3 indicate that private equity is likely to be the biggest story across the sector over the next 12 months, with 87% of CCB respondents indicating that they expect the number of companies impacted by shareholder activism to increase or stay the same.”

High levels of government intervention, including changes in trade policy and protectionism, remain the biggest perceived risk to growth for the P&U sector according to 42% of CCB respondents. The need to balance near-term opportunity with long-term value creation also presents the greatest challenge to the C-suite, with 67% looking to pursue growth organically. However, 50% cite growth in market share and acquiring innovation as key M&A drivers.

Digital transformation is driving M&A

The CCB further highlights how technology is changing customer behaviors, creating pressure for sectors to converge to meet new demands. Sixty-six percent of respondents state that they are taking proactive measures to address the impact of digital transformation, with 46% planning to build more digital capabilities in-house and 30% looking to buy – or form alliances with – digital companies.

Rennie says: “The pace of disruption and innovation is compelling power and utilities companies to review their portfolios more regularly. And megadeals in the third quarter of 2017 highlight how industry consolidation is increasing and creating larger, and more diversified portfolios around the world. Those companies that can better identify emerging trends will be able to readjust their portfolios and recycle capital to take advantage of new growth areas.”

Geographically, the US and Germany are the top two P&U investment destinations the report finds, with the former hosting several deals involving distressed assets despite increased scrutiny around deals involving regulatory assets and uncertain federal energy policies. Notably, activity was buoyed by the return of large independent power producer deals across the US and Europe. Brazil, Australia and China are also among the top five investment destinations according to the CCB.

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Notes to Editors

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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

EY Global Capital Confidence Barometer is a biannual survey compiled by Euromoney Institutional Investor Thought Leadership of nearly 3,000 senior executives from large companies around the world and across industry sectors. This is the 17th biannual CCB in the series, which began in November 2009; respondents for the 17th edition were surveyed in September and October 2017. Respondents represented 14 industries, 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 Global Capital Confidence 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. ey.com/ccb #EYCCB

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 2017. They provide an up-to-date assessment of outcomes and trends in the global utilities industry.