Global capital flows in Q3 18
Total shareholder return (TSR)
We break down our view of TSR by regions and segments.
Regions
Americas: The YTD return of the EY Americas Utilities Index was 3.4%, which is significantly lower than the regional market (as benchmarked by the S&P 500 index), which has been steadily increasing since mid-March, returning a YTD TSR value of 11.3%. The QTD returns for utilities in the Americas were also significantly lower than the overall market.
Europe: The YTD TSR of the EY European Utilities Index was 8.9%, which is significantly higher than the YTD TSR for the European benchmark index STOXX Europe 600, which performed poorly, returning a mere -1.8% for the year. The utilities index followed the market until the end of April, when the STOXX Europe 600 began to decline and the utilities index started to steadily rise. Utilities also outperformed the index for the quarter, returning 3.1%, compared with the benchmark value of 1%.
Asia-Pacific: The EY Asia-Pacific Utilities Index performed significantly worse than the Nikkei 225, the Asia-Pacific regional benchmark index. Asia-Pacific utilities returned -1.8% YTD compared with the market at 4.2%. The QTD and YTD returns of the EY Asia-Pacific Utilities Index were also significantly lower than the returns from other regional EY utilities indices.
Segments
For each regional segment, we examined the TSR and the EV/FY2 EBITDA values.
Americas: Generation achieved the highest TSR of the region, and was the only segment to outperform the market. Medium and small market capitalization integrated assets TSR performed the worst. The TSR of the water and wastewater segment performed better than in other regions.
The Americas utilities EV/FY2 EBITDA (enterprise value by next 12 months’ earnings before interest, tax, depreciation and amortization) multiple traded at a discount when compared with the Q2 average of 9.7x. Water and wastewater assets traded higher than the forward multiple of this asset across other geographies.
Europe: Generation achieved the highest QTD TSR in the region, while the water and wastewater segment TSR performed the worst. The TSR of the large market capitalization integrated segment performed better than in other regions.
The European utilities sector traded at the lowest EV/FY2 EBITDA multiple during Q3, and renewables traded the highest of all asset classes in Europe and recorded the highest performance for renewables across all regions.
Asia-Pacific: Gas utilities achieved the best YTD TSR in the region, and was the only segment to outperform the market. The renewables segment TSR was the worst result of the region, and also represented the poorest performance for this segment across all regions. The TSR of the medium and small market capitalization integrated segment outperformed other regions.
The Asia-Pacific utilities sector EV/FY2 EBITDA traded highest across all geographies and slightly higher than in Q2.
Top five deals per region in Q3 18
Americas
| Announcement date | Target | Target country/ bidder country |
Bidder | Deal value (US$) | Bidder rationale | Segment |
| August/September | Enbridge Energy Partners LP (66.06% stake), Enbridge Energy Management, L.L.C. (88.33% stake), Spectra Energy Partners, LP (16.89% stake) | US/Canada | Enbridge Inc. | 18.3b | Helps streamline bidder’s corporate and capital structures, improve its credit rating and mitigate impacts associated with regulatory changes that will impact the cash flows of master limited partnerships (MLPs) | Gas utility |
| 5 September | Sempra Energy (non-utility operating solar assets, solar and battery storage development projects, and one wind facility) | US/US | Consolidated Edison Inc. | 2.1b | Strengthens Consolidated Edison’s position in the renewable energy market and will generate synergies due to proximity of plant locations | Renewables: solar, battery and wind |
| 5 September | NextEra Energy, LLC (11 wind farms with a cumulative capacity of 1.4 GW) |
US/US | NextEra Energy Partners, LP | 1.3b | Gives bidder access to high-quality, contracted renewable energy assets and is in line with its strategy to expand its geographical footprint | Renewables: wind |
| 24 September | Dominion Energy (two combined-cycle plants) | US/US | Starwood Energy Group Global, LLC | 1.2b | Supports bidder’s strategy of buying or building core infrastructure assets in attractive locations close to customer demand | Generation |
| 29 July | Bayonne Energy Center, LLC | US/US | NHIP II Bayonne Holdings LLC | 0.9b | Supports bidder’s strategy to invest across the energy sector in developed markets | Generation |
Note: All deals are announced deals, and the values indicated are disclosed enterprise values comprised of equity and debt components.
Europe
| Announcement date | Target | Target country/bidder country | Bidder | Deal value (US$) | Bidder rationale | Segment |
| 26 July | Hornsea 1 (50% stake) | UK/US | Global Infrastructure Partners (GIP) | 5.9b | Aligns with GIP’s strategy of acquiring stakes in under-construction renewable assets with a focus on long-term returns | Renewables: wind |
| 19 July | RTR Rete Rinnovabile S.r.l. | Italy/Italy | F2i SGR SpA | 1.5b | Fits with investor’s strategy to acquire renewable assets for long-term stable returns | Renewables: solar |
| 27 September | DESFA SA (66% stake) |
Greece/Italy | Snam SpA; Fluxys SA; Enagas S.A. | 0.6b | Takes the company private; with the consortium planning to transfer technical and operations capabilities to drive synergies, as well as exploring expansion opportunities | Gas utility |
| 31 July | Encevo S.A. (25.48% stake) | Luxembourg/China | China Southern Power Grid International (HK) Co., Ltd. | 0.5b | Supports investor’s strategy to expand geographical footprint | Generation |
| 11 September | Valdesolar Hive SL | Spain/Spain | Repsol S.A. | 0.2b | Supports investor’s strategy of diversifying into renewable energy | Renewables: solar |
Note: All deals are announced deals, and the values indicated are disclosed enterprise values comprised of equity and debt components.
Asia-Pacific
| Announcement date | Target | Target country/bidder region |
Bidder | Deal value (US$) | Bidder rationale | Segment |
| 13 August | APA Group Ltd*. | Australia/Hong Kong (Greater China) | CK Infrastructure (CKI), CK Asset (CKA) and Power Assets Holdings | 16.3b | Establishes CKI as a major player in Australia’s east coast gas pipeline network, where it already owns stakes in gas infrastructure and energy assets | Gas utility |
| 20 September | Energy Development Corporation (EDC) (10.89% stake) | Philippines/ Philippines |
EDC | 1.3b | In line with EDC’s plan to delist, giving the organization greater corporate flexibility and allowing it to offer shareholders a premium to the current share price | Renewables: geothermal |
| 6 July | X-ELIO Energy, S.L. (187 MW Japanese solar assets portfolio) |
Japan/Japan | Consortium formed by Japanese institutional investors | 0.6b | Aligns with investor’s goal of investing in growth assets with long-term returns | Renewables: solar |
| 12 August | Ramky Enviro Engineers Limited (60% stake) | India/US | Kohlberg Kravis Roberts & Co. L.P. | 0.5b | Brings operational advantages by leveraging the bidder’s engineering innovation, through attracting managerial talent and boosting efficiencies | Water and wastewater: treatment |
| 26 July | Monnet Ispat & Energy Ltd. (74.29% stake) | India/India | JSW Steel Ltd.; AION Capital Partners Limited | 0.4b | Aligns with JSW’s focus on acquiring smaller steel plants with captive generation in the domestic market | Generation |
Note: All deals are announced deals, and the values indicated are disclosed enterprise values comprised of equity and debt components.
*Note: The completion of this deal remains in balance as the Federal Government issued a preliminary view that the bid should be rejected.
Summary
For the world’s power and utilities companies, investment and mergers and acquisitions are important strategic tools to help navigate the radical transformation of their sector. But global dealmaking conditions are becoming more complex and finding the right opportunities is increasingly difficult.
