EY’s review of Q3 2016 deal activity within the power and utilities (P&U) sector shows ongoing stability to be expected into 2017. Highlights from the quarter include ongoing premiums on prices for regulated assets, increased investment in renewables and diversification into disruptive technologies.
Regulated network assets (i.e., transmission and distribution assets) are described as “safe havens” for investment, translating into transactions worth US $23.6 billion in Q3 2016. EY reports that this sum accounted for more than half of the quarter’s overall deal value. Investors view regulated network assets as stable with long-term returns in a relatively volatile market.
Renewable energy assets continue to record strong valuation multiples. Q3 2016 saw 23 deals worth US $2 billion in the renewables segment, with offshore wind assets in particular receiving spotlight attention from investors.
EY notes that investors are expected to look for opportunities in emerging markets with growing energy demands, and disruptive assets (such as battery storage, micro-grids and virtual power plants) due to the falling costs of PV panels and energy storage batteries.
EY’s regional snapshots provide a more detailed breakdown of trends and predictions in the P&U sector:
- The Americas were the “hot spot” for deal activity in Q3, representing 66% of total global deal value. More than half of the deals in renewable energy and regulated assets in Brazil, Canada, Chile and Mexico involved acquisitions by foreign buyers worth US $3.3 billion.
- Deal value in Europe decreased slightly in comparison to Q2. Diversification and investment in renewables and disruptive technologies are highlighted as key priorities for this region. Utilities are changing their energy mix with a policy shift towards lower-carbon energy sources. Coal-fired power plants will pave the way for increased renewable and gas-powered energy capabilities.
- Similarly, EY reports that focus on renewable energy deals was a driving factor in the Asia-Pacific China and India alone contributed 77% of deal value in the region.
- EY highlighted areas of opportunity in Africa and the Middle East as residing in new conventional power and renewable energy. Foreign investment from China has driven growth in the P&U sector in this region, in addition to an increased presence from European utilities.
EY concludes that, despite economic challenges at the global level, M&A markets should remain stable in the P&U sector.
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