Global power and utilities (P&U) deal value rose to an all-time quarter high of $97 billion in the first quarter of 2018, with 15 multi-billion-dollar deals alone accounting for 90% of deal value. That is according to EY report Power transactions and trends: Q1 2018 (PTT), which reveals that 48% of total deal value was contributed by one announced European megadeal.
The sector’s strong dealmaking intentions are also reflected in the 18th EY Power & Utilities Global Capital Confidence Barometer (CCB), which finds that 71% of P&U executives expect to see an increase in mergers and acquisitions (M&A) activity and 61% anticipate that the sector economy will improve in the next 12 months. Eighty-four percent of CCB respondents also expect to see increasing competition for assets in the next 12 months, as financial sponsors’ involvement in the market continues to strengthen.
“Favorable M&A conditions look set to heat up further for power and utilities, as investors bid aggressively for fewer opportunities amid historically low interest rates, high stock valuation currency and robust access to the capital markets," said Miles Huq, EY Global Power & Utilities Transactions Leader. "However, a more complex deal environment is emerging – driven by the entry of nontraditional competitors, the changing generation mix and increasing customer expectations – and challenges such as the introduction of smart technologies and ageing infrastructure are transforming the power and utilities landscape.”
The PTT highlights that nearly half (49%) of all deals announced in Q1 2018 were in renewables, as utilities begin to build and operate renewable assets themselves and as the adoption of electric vehicles continues to boost investment in supporting technologies. Additionally, the CCB finds that 71% of P&U executives now place portfolio transformation at the top of the boardroom agenda, as businesses increasingly look to invest in emerging technologies.
Acquisition of integrated assets drives deal value in the Americas
Sector deal value in the Americas rose to $29.4 billion during the first quarter of 2018, up 32% on Q4 2017, driven by low interest rates, robust access to capital and favorable transaction terms. Integrated assets accounted for 58% of total deal value, while eight multi-billion-dollar investments contributed $25.2 billion. The announced merger agreement between SCANA Corporation and Dominion Energy at the start of the year contributed 49% of the Americas’ quarterly transactional value.
Huq says: “There is mounting pressure on merchant generation in the Americas, with a number of coal and nuclear generators seeking government support. These developments play out against a backdrop of continued investment in renewable energy, with Q1 2018 hosting 22 clean energy deals worth US$3.1b. Momentum in renewables also continues in the US. Despite initial concerns that federal tariff increases on imported solar cells would slow the US solar industry, a continued decline in technology prices and corporations’ resolve to embrace renewables has sustained momentum in this segment.”