Power and utilities: US Deals 2023 midyear outlook

Renewed momentum for power and utilities

Macroeconomic and geopolitical pressures continue to broadly challenge the deal environment. However, positive influences in the sector have spurred momentum and a wave of investment in key asset classes — a trend that should continue as we move from the latter half of 2023 and into 2024. These influences include the Inflation Reduction Act (IRA) and continued emphasis on environmental, social and governance (ESG) strategies. Notably, renewable and clean energy deals drove more than three-quarters of deals in the last twelve months (LTM) ending May 15, 2023; showcasing the significant interest from a broad pool of investors and a momentum shift with the passing of the IRA.

While both LTM deal volume and value continue to remain below the five-year average, renewed momentum is expected as we progress into the second half of 2023 and into 2024. We expect IRA-related momentum, supportive ESG initiatives, broad investor interest, portfolio realignment and the refocusing of strategic agendas to continue to drive investment prioritization and deal activity for power and utilities.  

Explore national deals trends

Portfolio realignment continues

As the deals landscape has changed recently for power and utilities, more portfolio and single-asset transactions have emerged versus traditional large-scale mergers. As dealmakers realign portfolios through deals, integration has taken new shape.

Overall inflationary pressures and increasingly expensive capital have heightened focus on early and sustained investment in integration, and a commitment to creating and implementing new long-term operating models.

Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report.

Key deal drivers

Opportunity amid uncertainty

While inflationary pressures, supply chain constraints and interest rate increases have the potential to challenge valuations, incentivized capital and broader investor interest may continue to enable deals. As industry participants navigate the deals market, the abundance of players, including those driven by ESG initiatives, is further increasing the competition for assets. And the playing field is evolving — from competition for individual asset classes (e.g., renewables, clean energy, utilities) to more broad-based sector deal competition as ESG-driven investment and initiatives bring new players to the arena. With many deals commanding top dollar, the pressure to find value is rising.

Despite renewed momentum in the sector, power and utilities deal volume and value in the LTM were largely consistent with 2022 and remained suppressed compared to 2021.The LTM saw 37 deals, up from 35 in 2022 and down from 56 in 2021. Total deal value of $35.4 billion is down from $36.1 billion in 2022 and $53.3 billion in 2021.  In addition to a focus on renewables and clean energy, contributions from both strategic and inbound investors remained strong. For instance, Inbound deals represented 67% of deal value in the LTM, up from 56% in 2022 and 35% in 2021. One megadeal in the LTM, a deal over $5 billion, drove 19% of total LTM deal value.

Resilience and innovation for growth and sustainability

Inflation, rising cost of capital, geopolitical pressures and supply chain constraints have created headwinds for industry participants. However, we expect energy transition policies, including the IRA, to fuel significant capital investment and deal activity in the sector in the years to come. Since the passing of the IRA, 29 deals worth $30.1 billion have been announced, highlighting renewed momentum particularly in renewables and clean energy in the sector.

Looking at the LTM, the power and utilities industry saw 31 renewable and clean energy deals, up from 25 in 2022 and 29 in 2021. Total renewable and clean energy deal value increased to $29 billion. Federal policy has extended the runway for existing tax credits for wind and solar power, while also introducing new incentives and funding for driving investment in transmission, carbon capture, hydrogen and other clean technologies.

Renewables and clean energy account for 83% of LTM deal value

Necessity for business reinvention

Divestitures remain a key avenue for realigning portfolios and refocusing strategic agendas in the sector. Corporate leaders are strategically using deals to transform their companies in order to keep them relevant in a rapidly changing environment. PwC’s recent divestiture study found that companies that make timely and objective divestiture decisions and strategically manage their portfolios are at an advantage in this dynamic business environment. Divestitures can be a critical part of the transformation and reconfiguration process to create value and drive shareholder returns.

Additionally, the focus on ESG efforts is here to stay as indicated by recent deal activity related to climate change, social justice equality and diversity. In today’s market, investors and stakeholders are more frequently viewing social good and profitability as intertwined. Sector participants are expected to continue evolving ways in which they can pursue ESG initiatives, optimize and refine their ESG reporting and embrace purpose-led strategies.

“As companies navigate inflationary pressures while balancing customer affordability, reliability and decarbonization efforts, successful deals are expected to demand early prioritization of strategic and cost-to-achieve planning.”

— Jeremy Fago, US Power and Utilities Deals Leader, PwC US
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