Worldwide power and utilities M&A down, but deals involving smart grid, solar and energy storage up

Written By: Stratton Report
November 21, 2016

EY

On November 21, EY announced that global power and utilities deal value continued to decline— falling 8% to $39.7 billion in Q3 2016 from Q2 to continue the yearlong trend.

Per the firm, regulated network assets offering stable long-term returns were favored by investors, with transmission and distribution assets accounting for more than half of total deal value in the third quarter at $23.6 billion. The average deal size for these assets increased by 200% to $3.9 billion in Q3.

According to EY, there were 102 deals in Q3, down from 128 in the second quarter of the year. Fifty-three percent of total global deal volume came in the form of renewable energy assets valued at $7.9 billion.

Matt Rennie, EY Global Power & Utilities Transactions Leader, remarked:

“Regulated network and grid assets offer stable cash flows to investors looking to weather short-term uncertainty caused by ongoing commodity price volatility and recent depressed electricity demand. A closer look at smaller transactions in the sector reveal, however, that major utilities are looking beyond safe bets and investing in a new energy future. Utilities are facing competition from new players in areas such as energy management and the connected home. That, coupled with the emergence of innovative products and business models, is persuading utilities to explore mergers and acquisitions opportunities to acquire the necessary capabilities to stay competitive. Battery storage, big data analytics and home automation are just some of the areas where we expect utilities to target acquisitions.”

During the first nine months of 2016, the firm emphasized that nearly $2 billion worth of what it termed “disruptive deals” involved acquisition of rooftop solar, battery storage and smart meter assets by both corporate and financial investors.

Oil and gas companies too are increasingly diversifying into the power and utility sector, particularly into the battery storage segment, contributing over $1billion of the total deal value attributable to disruptive technologies this quarter.

EY noted that according to its surveys of industry executives, investments in the areas of battery storage and software solutions start-ups are expected to continue as utilities seek to optimize their business portfolios in response to transformation within the sector. Forty-seven percent of utilities plan to actively pursue acquisitions over the next 12 months.