Corporate mergers and buyers focused on global renewables and regulated assets led a 105% increase in global power and utilities deal value in the second quarter of the year compared to the same period in 2015, according to EY’s "Power Transactions and Trends Q2 2016" report.
Deal value totaled US$43.5b in Q2 2016 — down slightly from a strong first quarter of US$44.4b. Deal volume (128) grew 33% over the same period in 2015 and 10% over Q1 2016.
“Ongoing sector and global volatility continues to be at the forefront of investors’ minds,” says Matt Rennie, EY Global Power & Utilities Transactions Leader.
“In the second quarter we saw this play out in the form of buyers seeking safe bets in renewables, where demand continues to rise in developed and emerging markets, and regulated transmission and distribution assets that offer stable, long-term returns.”
Deals involving renewables and regulated assets accounted for 52.3% (67 deals) of total deal volume, with a cumulative worth of US$13b.
The trend toward investment in disruptive technologies is also gathering pace.
“Both utilities and non-traditional investors are shifting their focus to areas like distributed energy and battery storage. And, as consumer demand increases, more M&A will follow,” says Rennie.
The Americas contributed the largest share of deal value in the quarter with a total of US$24.7b. Mirroring the global trend, energy technology and rising adoption of renewables continued to drive sector convergence and M&A in the region.
Consolidation in the US also persisted under the pressure of environmental regulations and depressed energy prices.
Europe experienced a strong quarter with a 44% increase in deal value (US$8.2b) over Q2 2015 and a 10% increase over Q1 2016.
Additionally, while utilities traditionally favor small- to mid-size bolt-on deals, two billion-dollar acquisitions from Chinese and Russian investors contributed 35% to the region’s deal value in the second quarter.
Rennie says: “The UK’s decision to leave the EU may impact M&A in the country and, potentially, across Europe. The full effect of the referendum won’t be clear, however, until the UK’s energy policy and position in the EU energy market unfolds.
“This is just one of many unknowns in today’s power and utilities sector. Transaction activity in the coming months will tell whether utilities are ready to take a chance on new avenues of growth or whether caution will prevail.”