M&A deals hit six-year low in power & utilities sector - report

Mergers and acquisitions (M&A) activity within the power and utilities sector fell to a six-year low in the first half of 2015, according to data released this week by market research firm EY.

The firm’s report, Q2 2015 Power Transactions & Trends, showed M&A activity of $50.9bn, with just 96 deals worth $21.2bn taking place in the second quarter of the year. However, despite the drop in activity, the firm said it had found “a range of positive developments across regions and segments” and that “valuations remain strong, reflecting ongoing investor confidence”. In addition, it found that “the sector’s rapid changes are driving a new M&A agenda”.

The Asia-Pacific region recorded the largest deal value of the period, at $9.3bn, with 86 per cent of this activity located in China. India, Indonesia, Pakistan and Japan “are also sparking interest”, EY said, driven mainly by energy reform and unbundling, while similar reforms in Africa and the Middle East were found to be attracting private sector investment.

The report said that Europe remains “attractive” for investors, particularly in the renewables and T&D sectors, despite a slowdown in deal activity, and that the value of European power generation assets is still high.

Renewables were found to be a significant driver of global M&A activity, with investors seemingly “willing to pay premiums for assets that can generate long-term stable returns”, especially solar and wind power installations. In the Americas, EY said, renewables dominated M&A activity.   

In a press statement, the firm called 2015 “an exciting time in the power & utilities transactional landscape”, with utilities using M&A to respond to new challenges. Among the notable strategies are new financing structures, investment in midstream infrastructure and renewables projects, corporate restructuring in Europe, and the rise of Africa and Asia-Pacific as investment hubs.

“We expect the remainder of 2015 to deliver some notable deals involving new players,” EY said. “Disruptive trends such as digitization, distributed energy and empowered customers will continue to influence the sector’s deal activity and asset valuations.”

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