Global utility M&A has record 2015 per E&Y

Written By: Stratton Report
February 18, 2016

Ernst Young

On February 18, Ernst & Young Global Limited announced that global power and utilities transaction activity continued in the fourth quarter with deal value ending 2015 up 13% from 2014 at $200 billion.
This transaction volume is a six-year high, according to EY’s report, Power transactions and trends: 2015 review and 2016 outlook.

According to the firm, renewables accounted for 50% of transactions with 245 deals generating $68 billion, showing that investors around the world remain focused on adding wind and solar assets to their portfolios to comply with regulations and reduce exposure to increasingly volatile commodities.
Investment opportunities in renewables, cross-sector convergence and midstream/upstream were primary deal drivers, as utilities sought new avenues for growth.

Matt Rennie, EY’s Global Power & Utilities Transactions Leader, noted:

“Utilities are increasingly joining forces with firms outside the sector to capitalize on synergies and shared experience. Electricity and gas megamergers in the US, telecommunications deals in Japan and tech-driven partnerships in Europe highlight the pursuit of innovative growth across the sector throughout 2015.”

Convergence and diversification were two especially strong trends in the Americas throughout last year as utilities sought strategic transactions to withstand economic volatility. Transaction activity in the US accounted for 82% of Americas deal value and 35% of total global deal value.

Rennie observed:

“Convergence and diversification remains an important deal driver in the US as companies rebalance operations in response to low wholesale prices, depressed load growth and changes in response to energy efficiency measures. Recent regulatory developments and five-year extensions to wind and solar tax credits will continue to bolster renewables investment in the country.”

2015 was a transformational year for Africa and the Middle East’s power and utilities sector as governments advanced reforms aimed at attracting private capital.

Investor interest in the region focused on new generation capacity, particularly around renewables. Declining oil prices also sparked infrastructure opportunities and encouraged utilities in the Middle East to diversify funding strategies.

Asia-Pacific led transaction activity with domestic and outbound deals in China and energy reforms resulting in a 100% increase in regional deal value over 2014.
Deal activity in China is expected to remain strong despite the economy showing signs of a slowdown. The country accounted for $51.7 billion in 2015.

Rennie remarked: “The need for new generation capacity across the region alongside energy reforms in China, India, Japan and Vietnam points to another strong year of transaction activity in the sector. Recent clarifications and certainty around the Renewable Energy Target will also spur renewables activity in Australia.”

In Europe, utilities pursued deal-making to aid their transition to new business models and explore new opportunities, such as energy services and customer solutions, as well as restructuring and expanding downstream operations. Transaction deal value totalled $39 billion in 2015 — a 20% decline over 2014.