Global Corporate Divestment Study
Power and utilities watch
Our latest Global Corporate Divestment Study found that more than half of surveyed companies have made a major divestment in the last two years.
Low growth was cited as the main reason for considering a divestment by 49% of P&U executives, with 57% saying they would reinvest in fast-growth areas, such as alternative energy.
P&U leaders rationalize portfolios in a challenging market
Power and utilities companies globally are dealing with a range of new challenges that are threatening conventional business models.
With low wholesale prices and surplus generation capacity in many developed markets, and network investment now plateauing after many years of strong growth, utilities are actively investigating ways to preserve market share and leverage existing skills, experience and capital.
These trends have spurred divestment and transactional activity. Much of the current appetite for divestments in the developed utilities sector reflects core themes of rebalancing and reform.
- Continued outbound investment from utilities in the US and Europe into the emerging markets
- Continued diversification into upstream and downstream parts of the supply chain, such as energy services, to retain current market share and target growth opportunities
- Continued activity as a consequence of reform. Divestments, acquisitions and investment follow clear signaling by governments that private sector capital can play a strong part in the future of markets.
Q: What power and utilities sector trends have motivated you to consider a divestment?
Q: What will you do with the money you raise from your divestment?
How are P&U companies utilizing divestment proceeds?
- Capitalize on new revenue streams
Demand reduction, new technologies and customer price sensitivity are driving P&U companies toward new revenue streams elsewhere in the supply chain and new regions.
Most executives (57%) plan to allocate divestment proceeds toward investing in alternative energy businesses, such as wind and solar power, to capitalize on the strong growth in those markets and hedge against reductions in revenue from more traditional sources of generation capacity.
This is particularly the case in Europe and the US, where utilities are responding to declining revenues domestically by out-bounding investment to developing markets in Africa and South America.
- Seek out regional growth opportunities
Divestments are also financing expansion into emerging and developing geographies with strong growth prospects. Europe-based companies hit hard by the regional economic climate are looking to emerging markets for growth.
Turkey’s electricity grid privatization, for example, has boosted acquisition activity in the P&U sector over the past few years, a trend that is set to continue as expected government plans to sell the country’s generation assets come on line. Africa is also becoming one of the most popular target destinations among global acquirers.
- Reallocate capital to the core business
P&U businesses are also reallocating capital freed up from divestments to focus on and reinforce their core business: 50% expect to invest in their existing business, and another 33% are planning to use sale proceeds to make acquisitions for their core business.
Germany’s E.ON is leading this trend, having exceeded its disposal target of €15b (US$20.5b) by over €4b (US$5.5b). Divestment is a key element of E.ON’s strategy, enabling it to expand its core power generation activities, reduce its network carbon intensity and expand outside Europe.
Target financial buyers
Private equity and sovereign wealth funds are showing increased interest in power and utility assets, in particular network assets with predictable, often regulated, revenue streams. As a result, 59% of executives expect to receive a higher valuation for their business in the near future than currently, while 30% have expedited their sale plans.
Early preparation and an understanding of where the value lies for particular financial investors are key to executing a successful sale.