Power and utilities Q2 14 deal activity hits four-year high

London, 31 July 2014

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Deal activity in the power and utility (P&U) sector spiked in Q2 14, with deal value and volume rising to US$58.1b and 128, respectively. Megadeals dominated the quarter with 12 transactions exceeding US$1b each, driven by US corporate mergers, privatization in Turkey and consolidation in the Russian power generation segment. This is according to EY’s quarterly Power transactions and trends report, released today.

  • Deal value doubles from Q1 to reach US$58.1b: volume increases by 32%
  • Governments push privatization programs
  • Asia-Pacific deal value doubled to US$7.9b, fuelled by Australian privatization and Chinese consolidation

Matt Rennie, EY’s Global Transactions Power & Utilities Leader comments:

“With the volatility of gas prices and increased energy efficiency shrinking utilities’ revenues, investors are now turning to mergers and acquisitions (M&A) to drive growth and achieve financial and operation efficiencies.

“The surge in deal activity in Q2 is likely to continue over the next six months with US cross-state mergers and Middle East privatizations driving values up, and volumes should be boosted by asset-level renewable transactions in Europe and generation asset sales in the US and Asia-Pacific.”

Governments push privatization programs

Governments across the globe are looking to invest in growth infrastructure but must first strengthen their balance sheets. The effect of this will be an increase in asset sales in the P&U sector. Australia is looking at privatization activity closely and is expected to have a strong start to 2015 in this regard. 

Difficult economic conditions in the European Union have seen several state-owned assets offered up for sale over the past 24 months. The resulting deal activity will provide opportunities for new investors outside of Europe, such as China and Australia. Turkey is also following the privatization route with sizeable M&A activity in Q2 14 seeing generation asset deals of US$4b in the quarter. Privatization reforms in China have seen the government offer up a large number of national projects to private investors. However, it will be challenging for foreign investors to compete with domestic buyers and alliances with local players offer the best chance of success. 

Increase in levels of deal activity for majority of global P&U market

In the Americas, deal activity in North America hit a five-year high in Q2 14, reaching US$35.5b, which is a significant increase from Q1 14’s US$6.46b deal value. The increase in Q2 14 is mostly a result of US megamergers, six of which exceed US$1b. Latin and South America’s Q2 14 deal value of US$2.9b was in line with Q1 14 deal value of US$3.1b. This quarter, activity was largely driven by Chile, Peru and Colombia as opposed to Brazil, which dominated Q1 14.

Q2 14 deal activity spiked in Asia-Pacific, with deal volume increasing to 38, up from 21 in Q1 14, and deal value doubling to reach US$7.9b. Domestic consolidation in China made up half the M&A activity in the region. In contrast, Europe recorded a dip in deal activity as divestments declined over the quarter. While volume remained steady in Europe, value dropped 29% to US$12.4b compared to US$17.4b in Q1 14.

Looking ahead, transactions are likely to remain strong

Market reform and unbundling are under way in several new geographies as regulators cut inefficiencies and governments look to raise capital to fund infrastructure. The outlook for transactions will continue to remain strong over the next six months and we can expect to see more billion-dollar-plus transactions in the US as pressure grows to consolidate.

The recent regulatory reforms in the Middle East are likely to open new investment opportunities and will continue to feature significantly for the next few quarters. Long-term infrastructure investment needs in Africa continue to grow, creating new opportunities for foreign investors looking to enter the region.  

Rennie concludes: “As the sector slowly transforms toward a more information-driven service industry, innovations, emerging technologies and new entrants will be key points on boardroom agendas. We expect large consolidation and sector disruption to drive what promises to be a strong year for P&U.”

To download the reports and historical data, visit: www.ey.com/PTT.


Notes to editors

About Power transactions and trends data

The analysis and perspectives in Power transactions and trends are based on global financial releases and mergermarket data, as well as global engagements conducted by EY member firms from 2012 to 2014. 

“Power and utilities” covers electricity generation, networks and retail; gas networks and retail; water wholesale, networks and retail organizations; and renewable energy companies. Deal activity and valuations may fluctuate slightly based on the final date of data collection and analysis by EY. 

About EY’s Global Power & Utilities Center

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 Center 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 Center works to anticipate market trends, identify the implications and develop points of view on relevant sector issues. Ultimately, it enables us to help you meet your goals and compete more effectively. 

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