Power & Renewables Deals 2017: what lies ahead for M&A?

2017: a year of political uncertainty but deal fundamentals are set to trump the politics

What lies ahead for M&A?

Our latest survey shows strong power and renewables M&A momentum. Total sector deal value is at the highest level in the current decade. But what’s in store for 2017 in a year of political uncertainty and changing economic conditions? We review M&A trends, highlight specific expectations for the year ahead and offer viewpoints on the main regions around the world.


Read our global overview on power and renewables M&A trends

Global overview: Growth, transformation and the search for yield

Norbert Schwieters, Global Power & Utilities Leader, PwC

Growth, transformation and the search for yield are key themes shaping power and renewables deals activity. But they are playing out in different ways around the world.  In the US growth through the acquisition of regulated assets has been a strong theme as corporates move to extend footprints in a market where consolidation has some way to run. Deal momentum in the US has been strong but show signs of slowing. Upward pressure on interest rates is creating uncertainty for US utility M&A with some companies likely to focus on strengthening balance sheets as valuations tighten while others may look to build scale through acquisition.

In contrast, in Europe deal activity has played out against a background of constrained economic growth and an already fairly consolidated sector landscape. Growth through acquisition has been reigned back by many companies in recent years. But with a number of companies emerging from a period of restructuring and transformation, the balance between divestment and acquisition is likely to shift as they seek to deliver on their new strategies

Buyers from the Asia Pacific region have been out in force in the past 12 months and we expect that to be the case again in 2017. And within the region, the flow of Australian network deals looks set to continue, making it potentially a bumper year for mega deals in Australia.  Underpinning these network deals, and similar transactions in Europe and the US, is investor appetite for the steady long-term yields that flow from regulated power and gas infrastructure assets. We anticipate that such deals will continue to attract strong investor interest with upward pressure on acquisition premia.

We move into 2017 with a number of political events facing dealmakers on both sides of the Atlantic and elsewhere. The viewpoints from my colleagues explain why, on balance, we believe the fundamentals of dealmaking in the sector will outweigh the political uncertainties.  Click to read our North America, Asia Pacific and Europe viewpoints.

Our 2017 outlook

We enter 2017 off the back of the biggest worldwide power and renewables deal value in the current decade. The coming year is set to be eventful on the political front in various markets around the world. But we expect that it will be economic forces and fundamentals within the sector rather than political risk that will be the key determinants for dealmaking in 2017. Here are our expectations for power and renewables deal activity in the year ahead.

Soaring deal value up in the clouds


2016 has been a bumper year but the outlook is more clouded for 2017. Deals for US targets have been putting the rocket fuel behind high worldwide power and renewables total deal value.  But we expect momentum may slow as dealmakers assess the implications of a changed economic outlook and rising interest rates.  A lot of the impetus for soaring deal value has come from big network infrastructure deals. A significant flow of such deals will continue to come to the market in 2017 but together they may not match the 2016 total which was boosted by a number of big gas network transactions.  


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Energy change trumps the politics


We don’t expect the uncertainties about climate change politics arising from the Trump presidency to have a significant impact on broader power and renewables M&A activity. To an increasing extent, the economics and momentum behind decarbonisation and wider energy change are now eclipsing the politics. Renewable energy enters 2017 in a stronger competitive position than in previous years. And wider technological developments in areas such as energy storage, distributed generation, electric vehicles and smart grids are adding to energy change. 


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A new chapter in corporate strategic moves is opening up


A number of leading European utility companies are resetting their sights outward on future strategic moves as they complete major corporate restructuring and divestment programmes. For example, Innogy, the networks, renewables and retail operations recently floated by RWE, intends to use the €2bn IPO proceeds to fund future-oriented investments in the renewables, grid and infrastructure business areas as well as in retail innovations. Increased investment in US onshore wind energy is part of the agenda for both Innogy and its German rival E.ON. 


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Thirst for yield set to raise valuations still further


It’s been a bumper year for sales of network infrastructure and other assets underpinned by steady, predictable and often inflation-hedged regulated returns. Interest in regulated utilities has remained strong and valuations have hit historic highs. We expect the demand side of this trend to continue in 2017 with the key questions being the level of impact from rising interest rates and the availability of assets on the supply side. Any shortage of targets could put upward pressure on deal premia, however, rising interest rates will most likely have the opposite effect, potentially putting pressure on valuations, widening the bid-ask spread and slowing deal activity.


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Chinese and Far East investor appetite strong despite setbacks


The appetite of Chinese and Far East investors for international power sector investments remains very strong. But it isn’t for the fainthearted with setbacks derailing some recent deals, notably Chinese and Hong Kong investors getting knocked out of the running in the Ausgrid sale process and Chinese investment in Belgium’s Eandis being placed on hold. National interest and security concerns are reinforcing the trend towards participation in joint and consortium arrangements, such as Chinese state entity investment with EDF of France in the Hinkley Point nuclear power project and China Investment Corporation’s participation with Macquarie in a broader consortium purchasing National Grid’s UK gas distribution business. 


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Energy transformation underpinning important moves


We expect to see more deals involving power companies and companies outside the sector with energy transformation in mind which has been underpinning some significant but mainly smaller deals. Companies are seeking to gain the technological and customer facing capabilities to get ahead in a new more distributed energy world where energy also stretches into adjacent sectors such as e-mobility and all industries experience a growing awareness around energy management. Much of the focus is on energy services and distributed generation, as seen with Centrica’s recent acquisition of ENER-G. New entrants from outside the sector are also competing in this space, as seen by Total’s decision to enter the energy supply market with its purchase of Lampiris in Belgium and battery maker Saft.


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Renewables delivering significant deal share


Recent renewables total deal value has been subdued in Europe and the Asia Pacific region and has been relatively flat in North America on downward volume. Nonetheless, we expect renewables to maintain a significant share of sector deal activity. Deals for renewable targets now comprise more than half of worldwide sector deal volume although typical deal sizes remain small. Larger deals continue to be often mainly focused on hydropower assets.  


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Make or break for some thermal assets


It’s make or break in many territories for some thermal generation assets, particularly coal-fired power stations. Sales are proving hard to get away. 2017 is set to see the landmark closure by Engie of the Hazelwood brown coal-fired power station, which has been meeting up to 25% of the state of Victoria’s energy requirements and 5.5% of the whole of Australia’s energy demand.  Some niche buyers are hoovering up thermal assets. In Europe, Czech-based energy group EPH is building a business purchasing fossil fuel generation assets that other utilities want to get rid of. 


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Deal flow: decade record high for sector M&A value

Global M&A value in the power and renewables sector has reached the highest level seen in the current decade – up 47% year-on-year to US$293bn in 2016. The appetite for deals is coming from both corporate and institutional buyers. And the rise in deal value is coming from many different parts of the world. Deal value in North America has risen to record levels, accounting for just over half of worldwide power and renewables deal value. But, alongside that, there have also been increases in Australasia, Europe and Latin America.  

At a glance

  • US$293bn worldwide power and renewables 2016 deal value, up 47% year on year from US$199bn in 2015. 
  • Strong demand from institutional buyers and infrastructure funds with purchases by these sources nearly doubling, from US$37bn to US$65bn. Deal value involving infrastructure funds alone rose fivefold, from US$7bn to US$31bn.
  • On the corporate side, over half of corporate purchases (US$150bn out of US$220bn) were for targets in North America.
  • It is the size of deals, particularly in the gas sector, that is driving total deal value. Actual deal numbers have slipped 8% year on year.
  • Renewables deal volume has stayed level but renewables deal value fell from US$55bn to US$38bn due partly to a number of large hydropower deals in the previous year comparison.

Around the world: a look at the main regions

Power and renewables deal value for targets in North America soared to a record US$167bn high in 2016. A series of mega deals in both the gas and electricity sectors boosted deal value, including the US$47bn merger of Canada’s Enbridge and Spectra Energy of the US to create the largest North American energy infrastructure company.

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Once again, 2016 was a record year for Asia Pacific buyers, eclipsing the record value reached in 2015. They are a key force in worldwide power and renewables deal activity, involved in US$66bn of worldwide power and renewables deal value in 2016.

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Although deal volume in Europe continued its downward trend, target deal value rose by a quarter in 2016. The rise to US$51bn from US$39bn was attributable to a number of major deals.

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Contact us

Norbert Schwieters

Global Leader, Energy, Utilities and Resources, Partner, PwC Germany

Tel: +49 211 981 2153

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