5 minute read 7 May 2020
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How M&A is expected to fuel faster recovery for power and utilities

By Arnaud de Giovanni

EY Global Power & Utilities Strategy and Transactions Leader

Future-focused thinker with over two decades of experience guiding power and utilities businesses through transformation.

5 minute read 7 May 2020

P&U companies are better prepared than most to address the immediate implications and see M&A opportunities in a post-pandemic world.

Crises create enormous risks for companies. They also generate opportunities. It is clear from the results of the latest EY Global Capital Confidence Barometer that power and utilities (P&U) executives are starting to look to the future, even as they address the immediate needs of keeping their people safe and their companies operating.

P&U executives express less pessimism at a sector level

Widespread containment measures implemented in response to COVID-19 have generated significant disruption to economic activity. With the sharp slowdown in industrial and commercial activities, demand for electricity has dropped by approximately 15% to 20% across Europe, India and the US. While dramatic, EY Global Capital Confidence Barometer results — which captured the sentiment of survey respondents between 4 February and 26 March 2020 — suggest that as an essential provider of electricity, gas and water, the P&U sector has been less significantly impacted than many other sectors, especially when compared with consumer-facing sectors, such as tourism, hospitality and retail. Among utility subsectors, however, there has been diversity regarding the impact.

Electricity and gas retailers were the first to experience the negative effects of the pandemic. Household utility consumption increased as people spent more time at home. However, this couldn’t offset the sharp drop in industrial and commercial demand. Electricity generators followed, with many seeing declines in revenues and pricing as supply chains and commercial businesses in many parts of the world remain shuttered. Meanwhile, renewables producers, capturing a greater market share of total generation with assets that have guaranteed tariffs, have been relatively shielded from the impact and will remain relatively healthy in the short- and medium-terms.

Bolt-on acquisitions and expansion fuel M&A appetite

Cautiously optimistic about economic growth within the sector and the M&A market, P&U executives have more confidence than their global peers about returning to dealmaking post-crisis.

In the first six weeks of 2020, as stock markets reached record highs, 48% of P&U respondents expected the M&A market to improve in the following 12 months. As COVID-19 advanced into a global pandemic, this rose to 59%.

And it appears P&U executives expect to turn sentiment to action, with 58% of respondents surveyed after 19 February 2020 saying they will pursue M&A in the next 12 months.

M&A survey power & utilities pursue M&A next 12 months

When asked whether their M&A strategy and outlook had been affected by COVID-19, 26% said it provided an opportunity to gain market share. This willingness for expansion may fuel the M&A pipeline. As the pandemic waxes and wanes in different parts of the world at different times, we expect P&U companies with the means to consider cross-border expansion. Respondents regard Canada, France, Brazil and India as top destinations for M&A activity.

Of course, all of this will hinge on credit availability. Companies that can bridge their external growth investments with equity while debt-financing markets are unavailable will have the advantage. However, even among those with cash on hand, there may be few willing to pull the trigger on transformative deals. Instead, 42% of respondents said they will be looking at bolt-on acquisitions that complement current business models.

For now, people safety, business continuity and liquidity are top concerns

P&U companies plan for unexpected events. They devote a significant amount of time on emergency planning and the ability of their assets to remain operational, even in times of crisis. As a result, they were better prepared for COVID-19 from a business continuity and resiliency standpoint than most. They are also better positioned to look at opportunities as resiliency turns to resurgence in a post-pandemic environment.

For now, we expect P&U companies to prioritize their people’s safety and continue to implement their crisis action plans, while reshaping strategies for recovery. This includes keeping cash on hand and reinforcing credit lines.

Transformation will resurface as companies prepare for what’s next

As P&U companies prepare for what happens next, we expect to see an acceleration of the transformation agenda. Sixty-eight percent of P&U respondents said they have a significant business and technology transformation program underway. So, while some companies may have pressed pause in favor of crisis management, in the near- to midterm, we expect it to be elevated back up the agenda as they look to strengthen their resilience and prepare for a resurgence. A number of utilities interviewed by EY professionals have spoken of their surprise at how successful remote working has been or how effective digital channels have become in their interactions with customers.

Already, COVID-19 has P&U organizations re-evaluating their operating models in response to the crisis. Eighty-three percent said it is affecting decision-making around their global supply chains, 74% said it will change how the workforce is managed, and 72% said it will accelerate their speed to automation.

The case for change


of P&U respondents said COVID-19 is causing them to re-evaluate or take steps to change their global supply chains.

Looking beyond and reimagining business models for a “new normal”

The future looks brighter for the P&U sector than it does for many others. When the economy hits the upside of the seesaw, P&U companies will be among the first to rebound.

While opportunities for resurgence will abound, P&U companies will need to be prepared for more lasting consequences. People are finding new ways to work, travel and entertain themselves. P&U companies will have to consider how these shifts in behavioral trends and customer experiences will impact them and the steps they’ll need to take to reimagine their business models for a new normal post-pandemic.

P&U companies are well-positioned to seize opportunities to accelerate recovery

Circumstances regarding the economic impact of COVID-19 continue to change by the day, making the future hard for any organization to predict. P&U companies are better prepared than most to address the immediate implications and turn their attention to planning for the next and thinking beyond. Lessons learned from the 2008–12 M&A downturn show that it was an opportunity to make acquisitions of high-quality assets that would have fueled faster growth in a recovering market. With more than half of P&U respondents intending to pursue M&A in the next 12 months, P&U companies seem to have an appetite to seize these opportunities to accelerate their recovery.


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Arnaud de Giovanni

EY Global Power & Utilities Strategy and Transactions Leader

Future-focused thinker with over two decades of experience guiding power and utilities businesses through transformation.