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Power transactions and trends | Q2 2016


Renewables drive increased M&A activity

M&A activity within Europe’s power and utilities (P&U) sector rose 44% in Q2 (to US$8.1b) compared to Q2 2015. Across the region, renewable assets continue to attract investors (doing deals worth US$4b) though regulatory uncertainty may impact transactions. While utilities continue to favor small- to mid-size bolt-on deals, two billion-dollar acquisitions contributed 35% to the total deal value during the quarter, led by Chinese and Russian investors.

Some utilities are optimizing asset portfolios to raise capital amid an environment of rising impairments, regulatory pressure to invest in grid infrastructure, a weaker currency and increasing inflation. In one example, EDF will sell almost 50% of its transmission operator unit RTE (estimated value of US$5.78b) to redeploy capital into its nuclear power business.

The impact of Brexit is likely to see planned investments and financing of energy infrastructure delayed in the UK, and investors are expected to demand higher returns due to uncertainty surrounding the country’s longer-term energy policies. If some European utilities or investors decide to leave the UK, we will see a reallocation of capital into Europe and elsewhere. More details on what Brexit means for P&U are explained in a recent blog by EY’s Global P&U Leader, Benoit Laclau.

Q2 2016 highlights:

  • Utilities sell to Asian corporate buyers at attractive valuations: European utilities attracted corporate buyers from Asia facing limited opportunities at home. In June 2016, China Three Gorges Corporation (TGC) acquired an 80% stake in WindMW GmbH from Blackstone Energy Partners for US$1.8b.
  • Integrated oil companies boost investment in downstream assets: Q2 saw a continued trend of upstream oil and gas companies diversifying revenue streams through adding new technologies and downstream P&U assets. In June 2016, Total SA acquired Lampiris N.V., a Belgium-based distributor of electricity and gas, for US$169m. Similarly, Statoil launched BatWind to develop energy storage for offshore wind.
  • Renewables remain attractive across Europe: The segment saw 24 deals in Q2 worth US$4b. But regulatory support toward clean energy is mixed across the region. While France and Italy have announced new targets and funding, others, including Germany and the UK, are withdrawing support for renewables.


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


Top five deals, Q2 2016

Announcement date (2016)


Target country


Bidder country

Deal value (US$m)



13 Jun

WindMW GmbH (80% Stake)


China Three Gorges Corporation



Expand China Three Gorges’ global footprint

Renewables: Wind

16 Apr

Irkutskenergo OJSC (40.29% Stake)


EuroSibEnergo Plc



Allows En+ Group to increase efficiency in operations and improve access to capital markets

Others: Integrated

27 Apr

Ekokem Oyj


Fortum Oyj AB



Diversify Fortum’s earnings structure

Others: Water and waste management

19 Apr

EDP Renovaveis, S.A. (49% stake in 23 onshore wind farms)

Spain, France,

EFG Hermes



Enhance EFG Hermes’ position in the European renewable energy market

Renewables: Wind

14 Jun

Iberdrola (5 onshore wind farms in Italy)


Glennmont Partners



Divestment will allow Iberdrola to focus on its core markets

Renewables: Wind

EY - Top five deals, Q2 2016

Source: EY and Mergermarket analysis


Valuation snapshot

Weak earnings and impairments weigh on valuations

The estimated earnings profile of European utilities remains weak. Earnings per share (EPS) calculated over the period 2015 (actual) to 2018 (estimated) has decreased to 2.2% versus 3% six months ago, dragged down mainly by generation assets. According to analyst estimates, European utilities have impaired 13% of assets since 2009 and goodwill of about US$111b still sits on balance sheets. Further write-offs may adversely impact EPS.

Utilities exposed to thermal generation assets continued to face earnings pressure in Q2. In the UK, SSE recorded a decrease of 3% in profit before tax after making significant impairment charges on the value of its coal and gas-fired power plants and gas production business.

Uncertainty surrounding nuclear remains across the region, as some countries proceed with a phase-out and others reconsider the value of their low-carbon base-load production. For example, Sweden, which had planned to decommission nuclear, recently announced a policy turnaround that will see the country cut taxes on nuclear capacity and build up to 10 new reactors in the coming years. Since nuclear assets entail huge investments, even a slight change in the regulatory regime can have a big impact on valuations.

Renewable energy assets continue to command attractive valuations. On average, Europe’s green utilities outperformed the Morgan Stanley Capital International (MSCI) Europe utilities index by 11% in Q2 2016 and we expect this segment to continue to drive M&A in coming quarters.

Valuations of transmission and distribution (T&D) assets remain high, trading at a premium of 12% based on FY2 EPS multiples. We expect this trend to continue as more utilities seek the stable, regulated revenues of these assets. Another driver for investment is increasing regulatory pressure to set up new T&D infrastructure to cater for interconnectors and renewables.

Retail business revenues are down as competition from new and nimble entrants increases. According to the UK’s Department for Business, Energy and Industrial Strategy (BEIS), 1.9 million electricity and gas customers switched suppliers in Q1 2016.

Regulated transmission and distribution (T&D)

Average price/earnings (P/E) trading multiples for select T&D utilities

(on FY2 consensus EPS estimates, 2010-Q2 2016)

EY - Average price/earnings (P/E) trading multiples for select T&D utilities

Sources: Bloomberg, EY analysis

Generation and Independent Power producers (IPPs)

Average enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA) trading multiples for select IPPs

(on FY2 consensus EBITDA estimates, 2011-Q2 2016)

EY - Average enterprise value/earnings before interest, taxes, depreciation and amortization (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, 2010-Q2 2016

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

Sources: Bloomberg, EY analysis


M&A hotspots and capital outlook

Renewables and capex programs maintain momentum

Europe’s P&U M&A and capital agenda is likely to be impacted by several key factors, including:

  • The impact of Brexit: The UK’s decision to leave the EU is likely to affect M&A in that country, and potentially across Europe, until the UK’s energy policy and position in the EU energy market becomes clearer.
  • Renewable energy’s attractiveness: Investors will continue to be particularly interested in those clean energy assets backed by power purchase agreements (PPAs) that provide stable, long-term returns as highlighted in the intercompany transaction in July, where Endesa acquired 60% of Enel Green Power España from Enel for US$1.34b. We may see some investors redeploy capital from countries that are withdrawing support for renewables toward countries with more supportive environments.
  • Strong medium-term capital investment agenda: A number of utilities plan to make significant investments in renewables and T&D. In February 2016, Iberdrola announced it would invest US$7b in networks and US$5.1b in renewables from 2016 to 2020. Gas Natural plans to add 2.5 GW of renewable capacity by 2020. EDF will divest as much as €10b (about US$11b) of assets to redirect capital toward new nuclear build, while Engie’s €22b (approximately US$24.3b) capex plan (2016-18) will concentrate on asset optimization and low carbon capacity.
EY - Power transactions and trends | Q2 2016 - Europe
EY -Power transactions and trends | Q2 2016 - EuropeEY - Power transactions and trends | Q2 2016 - Europe: ItalyEY - Power transactions and trends | Q2 2016 - Europe: ItalyEY - Power transactions and trends | Q2 2016 - Europe: DenmarkEY - Power transactions and trends | Q2 2016 - Europe: Germany


Q2 2016 Deal value

Q2 2016 Deal volume

Capital outlook



  • Government moves to slow renewables growth and focus on grid stability are expected to push up valuations for operational assets and lead to M&A. Financial investors may exit, with utilities taking over operational assets.

Power transactions and trends | Q2 2016 - Europe



Q2 2016 Deal value

Q2 2016 Deal volume

Capital outlook



  • Reduced government support for renewables may see some investors divest assets to recover invested capital, with utilities taking advantage of the opportunity to consolidate and expand their renewable energy asset base.

Power transactions and trends | Q2 2016 - Europe



Deal value

Deal volume

Capital outlook



  • M&A activity by pension funds and PE players is likely to continue, with a focus on renewables and grid assets.

Power transactions and trends | Q2 2016 - Europe


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

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

Arnaud De Giovanni
Head of TAS Power & Utilities, EMEIA
Paris, France
+33 155 61 04 18

Remigiusz Chlewicki
Central & Southern Europe TAS
Power & Utilities Leader
Warsaw, Poland
+48 22 557 74 57

René Coenradie
BeNe TAS Power & Utilities Leader
Rotterdam, Netherlands
+31 88 407 8777

Edgars Ragels
CIS TAS Power & Utilities Leader
Moscow, Russia
+7 495 755 9724


Umberto Nobile
Mediterranean TAS Power & Utilities Leader
Milan, Italy
+39 028 0669 3744

Martin Selter
GSA TAS Power & Utilities Leader
Berlin, Germany
+49 30 25471 21284

Stéphane Kraft
FraMaLux TAS Power & Utilities Leader
Paris, France
+33 155 61 09 28

Michael Bruhn
Nordics TAS Power & Utilities Leader
Copenhagen, Denmark
+45 2529 3135

Ian Whitlock
UKI TAS Power & Utilities Leader
London, UK
+44 20 7951 0892