Power and utilities: Deals 2022 midyear outlook

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Broad investor interest in power and utilities continues

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. 

Resurgence settles, investment themes remain

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. 

Highlights of deal activity

  • In the LTM, the sector saw a decrease in deal value, down 25% from 2021 and 17% from 2020 levels.
  • Financial players continued to drive deal value, accounting for 66% of the total deal value, increasing from 64% in 2021 and 28% in 2020.
  • Corporate deals dominated the sector, contributing to 79% of the total deal value, comparable to 79% in 2021 and 84% in 2020.
  • Renewable deals remained as a sizable portion of sector deal activity, with 37% of the total deal value for LTM.
  • Inbound investment accounted for 34% of deal volume and 39% of deal value — showing continued interest in the North American power and utilities sector by inbound investors.
  • ESG became a noted driver of deal activity as major power and utilities players and broader investor pools focus on ESG investment and goals.
  • The resurgence of megadeals remains, with two megadeals accounting for 33% of the total LTM deal value.

Top 10 LTM power and utility deals

  1. South Jersey Industries, Inc.
    Acquired by J.P.Morgan, $7.8 billion
  2. Covanta Holding Corp.
    Acquired by EQT Partners AB, $5.3 billion
  3. AEP Kentucky Power and Transmission Companies
    Acquired by Liberty Utilities Co., $2.8 billion
  4. 19.9% stake in FirstEnergy Transmission, LLC
    Acquired by Brookfield Infrastructure Partners, LP, $2.4 billion
  5. Dominion Questar Pipeline Businesses
    Acquired by Southwest Gas Holdings, Inc., $2.0 billion
  6. 6.75 GW Portfolio of Fossil Generation Assets of PSEG
    Acquired by ArcLight Capital Partners, LP, $1.9 billion
  7. Clearway Community Energy Development LLC
    Acquired by KKR & Co. Inc., $1.9 billion
  8. 10% stake in Sempra Global
    Acquired by Abu Dhabi Investment Authority, $1.8 billion
  9. OPAL Fuels, LLC
    Acquired by ArcLight Clean Energy Transition Corp., $1.5 billion
  10. 38.9% stake in Noverco Inc.
    Acquired by Trencap s.e.c., $945 million

“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 Fago, US Power and Utilities Deals Leader

Key deal drivers

Energy transition policy creates new avenues for investments

Inflation, rising cost of capital, supply chain constraints and uncertainty of federal policy focusing on the power and utility sector and clean investments create near-term headwinds for industry participants. As uncertainty lifts and strategies strengthen, we expect energy transition policies to fuel significant capital investment and deal activity in the sector. Federal policy changes have the potential to extend or modify existing tax credits for wind and solar power while also having the potential to introduce new incentives and funding for driving investment in transmission, carbon capture, hydrogen and other clean technologies. 

Broad investor interest in the sector will drive competition for deals

While inflationary pressures, supply chain constraints and interest rate increases have the potential to challenge valuations, capital availability and the broadness of the investing pool will continue to enable deals. As industry participants navigate the deals market, the abundance of players, particularly 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, 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.

Company-led ESG efforts are expected to drive momentum and focus

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 will continue to evolve ways in which they can pursue ESG initiatives, optimize and refine their ESG reporting and embrace purpose-led strategies. 

Contact us

Jeremy Fago

Jeremy Fago

Principal, Power & Utilities Deals Leader, PwC US

Kenyon Willhoit

Kenyon Willhoit

Power & Utilities Deals Principal, PwC US

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