4 minute read 16 Apr 2018
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How portfolio shifts will dictate power and utilities’ dealmaking

4 minute read 16 Apr 2018
Related topics Strategy and Transactions Power and utilities AI Blockchain Strategy by EY-Parthenon
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  • Power and Utilities - EY Global Capital Confidence Barometer - 18th edition (pdf)

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Our latest mergers and acquisitions report reveals a confident global power and utilities (P&U) sector.

Dealmaking looks set to continue, underpinned by a buoyant economic outlook on the back of the stronger-than-expected economic turnaround in Europe and positive growth in the US and China. As new technologies begin to impact traditional operating models, divestitures will be a critical component for power and utilities companies seeking to realign their portfolios for this new operating environment.

Macroeconomic environment and M&A outlook

P&U respondents expect improving economic conditions to drive deal activity. Executives anticipate an increase in mergers and acquisitions activity, and, as competition for P&U assets heats up, utilities will need to be prepared to act fast and with strategic discipline. Deal scarcity, competition for high-quality assets and increasing inflation are seen as the greatest risks to dealmaking.

Optimistic economy

61%

see the sector economy improving

M&A uptick

71%

expect an increase in M&A activity in the next 12 months.

  • P&U companies to pursue M&A

    P&U companies expect to actively pursue M&A — this trend is set to continue through the year. Dealmaking intentions were clear in the first quarter of 2018, as evidenced in our Power Transactions and Trends report— deal value hit an all-time quarterly high of US$97b.

    do you expect your company

  • Competition set to increase

    Competition, particularly from financial sponsors, is expected to increase. This will intensify competition for high-quality assets in the deal market, putting upward pressure on valuations and increasing bid-ask spread.

    do you expect to see increasing
    have you either failed
    what do you see as the biggest

Growth and portfolio strategy

Portfolio transformation is at the top of the boardroom agenda. P&U companies are keen to divest underperforming assets and invest in developing economies and emerging technology as sector disruption takes hold.

Portfolio transformation

71%

say that pportfolio transformation – buying and selling assets – is top of the boardroom agenda

Divestments

73%

expect shareholder activism to focus on divesting assets and buybacks

External environment

P&U executives continue to be concerned about political uncertainty and say it is the key risk to growth, while rising inflation is cited as the biggest threat to investment plans. But these risks are moderated by increased infrastructure spending and — surprisingly — most executives do not expect US tax reform to impact deal activity.

 

Inflation

52%

believe rising inflation is the biggest risk to investment plans

Infrastructure

63%

say increased infrastructure spending will have a positive impact on growth

How EY can help

Strategy services

EY-Parthenon’s teams challenge assumptions and help create strategies for the clients to grow, optimise their portfolios and improve profitability.

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Corporate finance

We help corporates, private equity, governments, sovereign wealth funds, private and family businesses, and educational institutions with their key financial issues.

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M&A advisory: Buy and integrate

Discover EY Buy and Integrate M&A Advisory services. We help enable strategic growth through integrated mergers and acquisitions, joint ventures and alliances.

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Divestment strategy: sell and separate

Our strategic portfolio management advice helps you decide what and when to monetize.

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Reshaping results

We help you transform or restructure your organization for a better future by enabling business-critical and capital investment decisions.

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Transaction tax

Every transaction has tax implications, whether it’s an acquisition, disposal, refinancing, restructuring or initial public offering. Our extensive cross-border experience, strong international network and broad commercial focus can help you identify the critical strategic tax considerations and explain them in the context of your transaction and future plans for the business.

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Global Capital Confidence Barometer 

Explore our latest M&A report.

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Summary

Dealmaking looks set to continue, underpinned by a buoyant economic outlook for the P&U sector. As technologies impact traditional operating models, divestitures will be critical for P&U companies seeking to modernize their portfolios, according to our latest M&A report.

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Related topics Strategy and Transactions Power and utilities AI Blockchain Strategy by EY-Parthenon
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