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Power transactions and trends | Q2 2016


Utilities redeploy capital to de-risk asset bases

This quarter saw continued strong results in the Americas power and utilities (P&U) sector, with Q2 hosting deals worth US$25b, compared to US$6.2b in Q2 2015.

The potential to offer stable returns in a volatile market has positioned regulated gas and electricity assets as targets for cross-border M&A, with foreign investors entering the market in greater numbers this quarter. The UK’s Brexit result saw some of the region’s large and mid-cap electricity utilities hit 52-week share price highs on 30 June, suggesting that investors sought the safe haven of regulated utilities amid volatility in financial markets.

Generation asset deals remained subdued, with the exception of US-based private equity player Riverstone Holding’s 65% stake acquisition in Talen Energy Corporation for US$4.9b.

Q2 2016 trends:

US consolidation remained the dominant driver: Utilities continue to consolidate as they adapt to tougher environmental regulations and depressed energy prices. To increase its customer base and drive sustainable growth, Great Plains Energy announced the acquisition of Westar Energy for US$12.1b in May 2016, the largest deal of the quarter.

Disruption and sector convergence continues: The opportunities created by new energy technologies and rising adoption of renewable energy continue to push sector convergence and drive M&A. Notable examples include Tesla’s June 2016 bid to acquire SolarCity for US$2.8b, EDF Renewable Energy’s April 2016 announcement that it would acquire Global Resource Options (groSolar) and US-based PE firm Vision Ridge Partners’ acquisition of electric vehicle charging network operator NRG EV Services for US$50m.

Chinese investors eye expansion in the Americas market: Q2 saw Power Assets Holdings Limited and Cheung Kong Infrastructure Holdings announce a 65% stake acquisition in the midstream assets of Canada-based Husky Energy for US$1.3b, in a deal that executes on their North American investment strategy. Similarly, Hong Kong-based Sky Solar Holdings acquired 22 operating solar facilities in California and one operating solar facility in Massachusetts for a combined 22 MW.

Cross-border financial investors bet big on US power assets: During Q2, financial investors and infrastructure funds from Canada, China, Singapore and Switzerland acquired assets worth US$3.3b in the US. This is an interesting phenomenon, considering that US network utilities are trading at a significant premium to their historic averages. The deal by Singapore-based wealth fund GIC Private Ltd to acquire a 19.9% stake in ITC Holdings Corp, from Fortis Inc., for US$1.2b is one of the biggest investments Asian companies have made in US power lines operators.


EY - Power transactions and trends: Q2 2016
EY - Power transactions and trends: Q2 2016


Top 5 Americas deals, Q2 2016

Announcement date (2016)


Target country


Bidder country

Deal value (US$m)



31 May

Westar Energy Inc.


Great Plains Energy Inc.



Creates operational cost savings and benefits for more than 900,000 Kansas and 600,000 Missouri customers


03 Jun

Talen Energy Corp (65% stake)


Riverstone Holdings LLC



Increases exposure to the competitive generation portfolio


25 Apr

Husky Energy (midstream assets)


Cheung Kong Infrastruc-ture (CKI); Power Assets

Hong Kong, China


Supports CKI’s strategy to invest in infrastructure opportunities and generate steady returns


20 Apr

ITC Holdings (19.9% stake)


GIC Private Limited



Allows Fortis to absorb ITC takeover, and aligns with GIC’s strategy to expand its US portfolio


21 Apr

Stagecoach Gas Services (50% stake)


Con Edison Transmis-sion, Inc.



Supports Con Edison’s strategy to expand its gas assets portfolio as electricity demand slows


EY - Top five deals, Q2 2016

Source: EY analysis based on Mergermarket data


Valuation snapshot

Brexit boosts regulated utilities; merchant generators continue to suffer

With the UK’s vote in late June to leave the European Union, a potential US Federal Reserve rate hike is likely to be delayed on the expectation of slower economic growth. As a result, utilities are attracting new buyers, despite trading at high premiums, as investors abandon relatively risky hybrid or unregulated utilities in favor of regulated assets. We expect that utilities with higher exposure and dependency on international earnings will witness short- to medium-term underperformance, as Brexit strengthens the US dollar. For example, the share price of PPL Corp, which has a large UK operation, has slipped more than 5% since the vote.

Coal plant retirements, renewable energy growth and aging grids are driving investment in electric and gas grid infrastructure. Exelon will spend US$18b on reliability, smart grid investments and other electric grid improvements across its utilities from 2016 to 2020. According to Fitch, capital expenditure across the gas utility distribution sector in 2016 is likely to reach US$5b, a 15% increase from 2015. These investments make US-based T&D companies attractive to buyers, with regulated utilities trading at a premium of 20% compared to their historical averages, despite flattening energy demand.

Merchant generators remain challenged by the weak commodity environment and are trading at a discount of 10% compared to historical averages. In some recent merchant asset deals, the median $/KW multiple dropped to 341 compared to 683 in 2015, moving ever further away from replacement build cost.

Despite subdued renewables M&A activity in the quarter (with deals worth just US$500m), several large and integrated utilities have announced significant investments into the segment to comply with state mandates. Southern, for example, plans to invest about US$5b in renewable energy over the next three years, more than double what it plans to spend on other new technologies, while Duke will nearly double its production and purchase of renewable power to 8,000 MW by 2020.

Regulated transmission and distribution (T&D)

Average P/E trading multiples for select US regulated utilities

(on FY2 consensus EPS estimates, 2007-Q2 2016)

EY - Average P/E trading multiples for select US regulated utilities

Sources: Bloomberg, EY analysis

Generation and independent power producers (IPPs)

Average EV/EBITDA trading multiples for select IPPs

(on FY2 consensus EBITDA estimates, 2013-Q2 2016)

EY - Average EV/EBITDA trading multiples for select IPPs

Sources: Bloomberg, EY analysis

Integrated and diversified

Average EV/EBITDA trading multiples for select diversified utilities

(on FY2 consensus EBITDA estimates, 2013-Q2 2016)

EY - Average EV/EBITDA trading multiples for select diversified utilities

Sources: Bloomberg, EY analysis


M&A hotspots and capital outlook

Several large corporate and merchant deals in the pipeline

Expect growing consolidation in the diversified and regulated segments as utilities use M&A to create synergies and drive growth:

  • Oncor acquisition touted as biggest deal of the year: The proposed acquisition of Texas-based electric distribution utility Oncor is likely to be the biggest deal of 2016. Among several financial and corporate bidders, NextEra Energy is seen as the preferred buyer. According to Bloomberg, NextEra's bid of cash and debt for Oncor could be as high as US$18b, exceeding the valuation for the utility in a recently dissolved acquisition bid by a consortium led by Hunt Consolidated Inc.
  • Private equity players emerge as preferred bidders for merchant assets: As highlighted in our previous edition, PE investors may acquire distressed merchant assets currently trading at discounts. In recent months American Electric Power Co. Inc., Dynegy Inc. and TransCanada Corp. have expressed intentions to sell off merchant portfolios. These proposed divestments provide financial investors an opportunity to enter merchant space at a time when public markets are shying away from the sector.
EY - Power transactions and trends | Q2 2016 - Americas
EY - Power transactions and trends | Q2 2016 - AmericasEY - Power transactions and trends | Q2 2016 - Americas: USEY - Power transactions and trends | Q2 2016 - Americas: Brazil


Q2 deal Deal value

Q2 deal Deal volume

Capital outlook



  • Expect growing investments in renewables as the government lifts clean energy generation targets to 50% by 2025.
  • Canadian investors are diversifying through US acquisitions, as evident from the acquisition of TECO Energy by Emera in July for US$6.5b.

Power transactions and trends | Q2 2016 - Americas



Q2 deal Deal value

Q2 deal Deal volume

Capital outlook



  • The drought’s negative impact on hydropower plant revenue and political volatility are denting foreign investor confidence. Duke Energy is considering selling its international business.
  • State-run electricity utility Eletrobras is accelerating the privatization of its distribution unit.
  • The government has set a minimum bidding price of US$830m for the sale of Eletrobras-controlled distributor Celg-D, following which the sale of controlling stakes in at least six other Eletrobras-held distributors is planned by the end of 2017.
  • China's State Grid International Development is acquiring a 23% stake in CPFL for US$1.8b in a bid to further expand its T&D business in the country.

Power transactions and trends | Q2 2016 - Americas


EY Global Transaction Advisory Services (TAS) P&U contacts

Matt Rennie
Global TAS Power & Utilities Leader
Brisbane, Australia
+61 7 3011 3239

Joseph Fontana
US TAS Power & Utilities Leader
New York, USA
+1 212 773 3382

Mitch Fane
US Southwest TAS Power & Utilities Leader
Houston, Texas, US
+1 713 750 4897

Miles Huq
US Northeast TAS Power & Utilities Leader
Maryland, US
+1 410 783 3735

Robert Leonard
US Southeast TAS Power & Utilities Leader
North Carolina, US
+1 704 335 4236

Dmitriy Litvak
US Central TAS Power & Utilities Leader
Illinois, US
+1 312 879 5913

Gerard McInnis
TAS Power & Utilities Leader
Alberta, Canada
+1 403 206 5058

Lucio Teixeira
South America TAS Power & Utilities Leader
Sao Paulo, Brazil
+55 11 2573 3008

Rafael Aguirre Sosa
MeCAR TAS Power & Utilities Leader
México, D.F., Mexico
+52 55 5283 8650