While macroeconomic pressures have the potential to broadly challenge valuations for power and utilities across North America, the sector continues to be targeted for deal activity as environmental, social and governance (ESG) strategies are strengthened and broad investor interest continues.
While interest is strong, deal momentum has slowed somewhat in comparison to the rebound in deal activity observed in 2021. Power and utilities saw decreases in both deal volume and value during the last 12 months (LTM) ending on May 15, 2022, as compared to full year 2020 and 2021. During this period, contributions from both financial and inbound investors as well as those focused on renewables remained strong. The LTM observed 41 deals, down from 56 in 2021 and 42 in 2020. On a value basis, total deal value decreased to $40.2 billion, from $53.3 billion in 2021 and $48.4 billion in 2020.The two megadeals drove 33% of total LTM deal value.
As we progress further into 2022, we expect federal policy and ESG initiatives to continue to drive investment theses and deal activity in the sector. Opportunistic M&A activity from a broad pool of investors is likely to continue, as additional clarity is gained and macroeconomic factors are navigated. Because of these factors, we expect investors and industry participants to look for opportunities to rebalance and rationalize their portfolios.
In 2021, M&A activity in the power and utilities sector saw a resurgence in both deal volumes and total deal value. Dealmakers found ways to strategically approach the deals market, particularly in the first half of 2021. Deal activity in our 12-month lookback remained strong but slowed in pace due in part to recent economic and geopolitical uncertainty, as well as continued uncertainty on federal policy. While both deal volumes and value took a step back, the investment themes continued to highlight the prioritization of ESG initiatives and investments in clean energy and infrastructure.
“As the industry grapples with macroeconomic and policy uncertainty, driving investor and customer value through decarbonization and portfolio rationalization will continue to be a focus.”
Jeremy R. Fago
Principal, Power & Utilities Deals Leader, PwC US
Power & Utilities Deals Principal, PwC US