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Power and utilities deals insights: 2021 midyear outlook

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What's driving deals in 2021

PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.

Broad investor interest, ESG efforts drive deals increase in power and utilities

Broad investor interest in the sector, environmental, social and governance (ESG) efforts, and initiatives to decarbonize helped drive M&A activity in the power and utilities sector in the last 12 months through May 15, 2021, back to pre-pandemic levels (52 deals in the last 12 months vs. 52 deals in 2019 and 42 deals in 2020). On a deal value basis, the total increased from $42.9 billion in 2019 and $48.3 billion in 2020 to $58.4 billion. While the first half of 2020 saw sizable reductions in deal value at $13.3 billion, megadeals returned in the second half of 2020 and first half of 2021 (through May 15, 2021) with $20.7 billion coming from megadeals (deals greater than $5 billion). The industry experienced increases in both deal volume and value over this period, with growth additions and yield also top-of-mind for dealmakers.

Power and utilities deals outlook

With the onset of the COVID-19 global pandemic in 2020, M&A activity in the power and utilities sector saw initial reductions in both deal volumes and total deal value. However, deal value rebounded in the second half of 2020 and first half of 2021. While various factors impacted the deal market in the last 12 months — including the broad impacts of the pandemic — dealmakers nevertheless managed to strategically approach the deals market. Additionally, deal activity underscored how companies are prioritizing ESG initiatives.

As we move further into 2021, we expect opportunistic M&A activity from a broad pool of investors to continue as industry participants look to rebalance and rationalize portfolios and deploy capital into attractive growth and yielding investments (such as we saw in the last 12 months). Additionally, we expect renewables and ESG initiatives to continue to drive investment theses and deal activity in the sector.

Highlights of deal activity

In the last 12 months through May 15:

  • The power and utilities sector saw an increase of 21% in deal value from 2020 and 36% from 2019.
  • Strategic players drove deal value, accounting for 71% of the total deal value, up from only 54% in 2019 yet comparable to 72% achieved in 2020.
  • Corporate deals dominated the sector, contributing 84% of the total deal value, up from 45% in 2019 and comparable to 83% in 2020.
  • Renewable deals remained a sizable portion of sector deal activity, comprising 20% of the total deal value.
  • Electric utility investment rose to 25% of total deal value compared to 16% in both 2019 and 2020.
  • Inbound investment accounted for 44% of deal volume, up from 27% in 2019, indicating continued interest among inbound investors in the  power and utilities sector.
  • ESG became a noted driver of deal activity, as major players in the power and utilities sector focus on ESG investment and goals.
  • The sector witnessed a resurgence of megadeals, with three megadeals accounting for 36% of total deal value.

Top 10 power and utilities deals

  1. Dominion Energy Natural Gas Transportation and Storage Business 
    Acquired by Berkshire Hathaway, $8.0 billion
  2. PNM Resources, Inc.
    Acquired by Avangrid, Inc., $7.7 billion
  3. The Narragansett Electric Company
    Acquired by PPL Energy Holdings, LLC , $5.1 billion
  4. Direct Energy LP
    Acquired by NRG Energy, Inc., $3.6 billion
  5. TC Pipelines, LP
    Acquired by TC Energy Corporation, $3.5 billion
  6. 20% stake in Sempra Global
    Acquired by KKR & Co., Inc, $3.4 billion
  7. Vivint Solar, Inc. 
    Acquired by Sunrun, Inc., $3.3 billion
  8. Canadian Business of Enwave Energy Corporation
    Acquired by Investor Group, $2.2 billion
  9. Arkansas and Oklahoma gas distribution assets of CenterPoint Energy, Inc.
    Acquired by Summit Utilities, Inc. (JPMorgan), $2.2 billion
  10. 19.9% stake in Duke Energy Indiana Holdco, LLC
    Acquired by Epsom Investment Pte Ltd, $2.1 billion

“Focus on carbon reduction and national infrastructure aspirations continued to influence deal activity in LTM (the last 12 months), as balancing of goals and related growth opportunities against needed reliability investment piqued investor interest”

— Jeremy Fago, US power and utilities deals leader

Key deal drivers

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

The pandemic has changed the behaviors and priorities of customers and employees, and a sharper focus on social justice equality, climate change and other societal issues has elevated the importance of ESG and diversity and inclusion. How companies invest in these areas will be critical to determining deal value. In this regard, momentum has continued to build for company-led ESG efforts, and recent deal activity has underscored ESG as a primary deal thesis. As sector participants continue to progress, ESG is expected to be a focal point. In today’s market, investors and stakeholders are more frequently calling for — and pointing to — ESG as a key priority, viewing social good and profitability as increasingly commingled. Sector participants will likely continue to find new ways to pursue ESG initiatives, optimize and refine their ESG reporting and embrace purpose-led strategies.

Broad investor interest in the sector will drive competition for deals

Capital availability and the variety of sources will likely continue to enable deals, but an abundance of players is increasing the competition for assets, and the seller’s market will likely keep most valuations high. With many deals commanding top purchase prices, the pressure to find value is ratcheting up. Investors face a competitive market that’s evolved from fierce competition over individual asset classes (e.g., renewables, gas utilities) as well as from more broad-based sector deal competition as ESG-driven investment and initiatives bring more (and new) players to the market. 

Initiatives to decarbonize will help to advance technology innovation and investment

As the sector progresses on initiatives to decarbonize over the coming decades and draw upon expanding customer expectations, technology innovation will be key to achieving targets. Decarbonization is being driven from multiple sources, including company-led ESG initiatives, government-led policies and stakeholder demand. Challenges of intermittency, technology advances and scaling are front and center. Look for increases in research and development (R&D) and investment, with a focus on innovation which could include battery and other advanced storage, advanced nuclear, carbon capture, renewable natural gas, green hydrogen and electrification.

Contact us

Jeremy R. Fago

Jeremy R. Fago

Principal, Power & Utilities Deals Leader, PwC US

Kenyon Willhoit

Kenyon Willhoit

Power & Utilities Deals Principal, PwC US

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