North American power and utilities deals insights Year-end 2019
Executive summary
Total deal value fell for the third year in a row, continuing its reduction from the banner 2016 deal market which saw $157 billion of total deal value, reducing to a total deal value in 2019 of $43 billion.
On a quarterly basis, after the lower third quarter deal market, Power & Utilities deal activity returned to higher levels in Q4 2019 with the announcement of the first mega deal ($5 billion+) of 2019. As a result of the registered mega deal and the 13 total deals of the quarter, Q4 was the strongest quarter on a deal value basis since Q2 2018. Q4 witnessed renewed interest from financial investors, accounting for 62% of total deal value for the quarter; renewables continuing to remain a key area of interest, contributing 43% to total deal value for the quarter; and strong inbound deal activity, contributing 62% to total quarterly deal value.
“Financial players returned to the forefront of deal activity, particularly as it relates to deal value with significant available investment capacity finding ample opportunity in the industry and as strategics continue their focus on digestion of previously announced mega deals.”
High level trends and highlights
Q4 Trends and highlights
- Total deal value increased to $15.8 billion in Q4 2019, making it the highest-value quarter since Q2 2018.
- Significant increase in inbound deal value, accounting for 62% of total deal value.
- Financial investors renewed interest in the sector, accounting for 38% of total deal volume and 62% of deal value.
- First mega deal of 2019 was announced in Q4 2019, accounting for 40% of total deal value.
- Renewable deals accounted for 43% of deal value in Q4 2019.
Deal value and volume overview
- Total deal value decreased by 41% to $42.9 billion in 2019, as compared to 2018. Total deal volume decreased by 24% in 2019, as compared to 2018.
- Total deal value increased by 126% to $15.8 billion in Q4 2019, as compared to Q3 2019. Moreover, deal volume also increased by 30% over Q3 2019.
- There was one mega deal in Q4 2019. This represents the first mega deal for 2019 and also the first since Q2 2018.
- The mega deal represented 40% of total value for the quarter.
- There were five deals greater than $1 billion in Q4 2019, representing 85% of total value for the quarter.
Deal size for Q4 2019
- In Q4 2019, total deal value increased to $15.8 billion from $7.0 billion in Q3 2019, making it the highest-value quarter since Q2 2018.
- In terms of deal volume for Q4 2019, 38% of deals were driven by deals in the $100-$250 million range. While significant in volume, these deals only accounted for 5% of the total deal value for the quarter.
- Deals ranging from $1billion+ also accounted for 38% of quarterly deal volume. Moreover, this category represented 85% of the total quarterly deal value.
Corporate vs. asset deals
- In 2019, asset deals slightly beat out corporate deals for the majority of annual deal value accounting for 55% of total deal value for the year. On an annual deal volume basis, asset deals made up a majority of 2019 annual deal volume at 75%.
- In terms of volume, asset deals were greater than corporate deals in Q4 2019, with nine asset deals compared to four corporate deals.
- Asset deals accounted for 69% (nine of 12) of total deal volume, and 41% ($6.4 billion) of total deal value in Q4 2019.
- DTE Energy’s acquisition of M5 Midstream was the largest asset deal of the quarter.
- With one corporate mega deal this quarter, corporate deal value significantly increased to $9.3 billion or 59% of total quarterly deal value.
- Three of the five largest transactions of the quarter were corporate deals.
Inbound vs. domestic deals
- In 2019, inbound deals accounted for 37% of total deal value and 27% of total deal volume.
- Inbound deals accounted for 38% of deal volume, with five total deals in the quarter. These five deals contributed $9.8 billion to total deal value for the quarter, or 62%. This quarter represents the first time since Q1 2017 that inbound deals drove the majority of quarterly deal value.
- The eight domestic deals in the quarter accounted for 62% of deal volume. These deals contributed $6.0 billion to total deal value for the quarter, or 38%.
- Inbound deal volume increased between third quarter and fourth quarter, from two in Q3 2019 to five in Q4 2019. Deal value also increased, from $1.4 billion in Q3 2019 to $9.8 billion in Q4 2019.
- Two of the top three deals, including a mega deal, in Q4 2019 were inbound deals, with the second largest deal of the quarter being a domestic deal.
Highlights of deal activity
Largest transaction
Canada Pension Plan Investment Board's (CPPIB) acquisition of Pattern Energy Group Inc. (Pattern Energy) for a deal value of $6.3 billion was the largest transaction of Q4 2019 and of 2019.
Mega deals ($5B and over)
CPPIB’s acquisition of Pattern Energy for a deal value $6.3 billion was the only mega deal announced in Q4 2019, and the first mega deal since Q2 2018.
Key announced transactions
- CPPIB entered into an agreement to acquire Pattern Energy for $6.3 billion. The transaction is expected to close by the second quarter of 2020. This deal accounted for 48% of total quarterly deal value.
- DTE Energy’s midstream subsidiary entered into an agreement to acquire M5 Midstream, a natural gas gathering system and pipeline in the Haynesville shale formation, for $2.7 billion.
- Brookfield Asset Management announced a definitive agreement to acquire a 25% stake in Dominion Cove Point LNG in a transaction valued at $2.0 billion. The announcement is part of Dominion Energy's strategy to establish a permanent capital structure for Cove Point.
- A consortium of buyers made up of the Public Sector Pension Investment Board and the Alberta Teachers' Retirement Fund Board announced its acquisition of AltaGas Canada Inc. for a deal value of $1.3 billion.
- ENGIE North America and Meridiam have been awarded a 50-year concession valued $1.2 billion to address the University of Iowa’s energy, water, and sustainability goals for two campuses spanning 1,700 acres in Iowa City, Iowa.
Strategic vs. financial deals (Deals > $50 million)
- In 2019, strategic deals slightly beat out financial deals for the majority of annual deal value accounting for 54% of total deal value for the year. On an annual deal volume basis, strategic deals made up a majority of 2019 annual deal volume at 69%.
- Strategic investors accounted for the largest share of deal volume in the sector for Q4 2019, accounting for 62%. This is a decline compared to Q3 2019, in which strategic deals accounted 67% of deal volume.
- However, strategic deals percentage of total deal value decreased in comparison to Q3 2019, accounting for only 38% of total deal value in Q4 2019 vis-à-vis 78% in Q3 2019.
- Conversely, Financial investor-driven deals accounted for 62% of the total deal value in the sector for Q4 2019. This is a significant increase in comparison to Q3 2019, in which financial deals accounted for only 21% of total deal value.
- Financial investor-driven deals contributed five deals in the quarter, an increase of 67% from Q3 2019 (three deals).
- Three of the five largest transactions (value >= $1 billion), including one mega deal, were led by financial investors: CPPIB’s acquisition of Pattern Energy, Brookfield Asset Management’s acquisition of a 25% stake in Dominion Cove Point LNG, and a consortium of buyers’ acquisition of AltaGas Canada Inc.
- DTE Energy’s acquisition of M5 Midstream and ENGIE North America and Meridiam’s award of the University of Iowa Utility System 50-year Concession were the two strategic deals greater than $1 billion announced in the quarter.
Transaction Multiples
- Enterprise Value (EV)/Earnings before interest, taxes, depreciation and amortization (EBITDA) and Price/Earnings (P/E) transaction multiples for gas utility transactions have trended upwards over time, as buyers have paid premiums for growth opportunities.
- With the changing makeup of the nation’s generation supply, dealmakers remain interested in gaining exposure to gas and electric transmission infrastructure.
- With the recent decrease in interest rates, bid ask spreads and valuations may benefit, which could impact deal activity.
- As the industry consolidates, small and mid-cap utilities have been viewed as potential acquisition targets.
Trading Multiples and indices
- Natural gas transmission and distribution continue to set the high end of the range of trading multiples for sub-sectors, primarily driven by the continued interest of investors in the growth opportunities provided by the rapidly changing makeup of the US energy generation and supply.
- Electric merchants continue to set the low end of the range of multiples for sub-sectors within the power and utilities industry, dragged down by concerns including exposure to commodity price volatility and market/regulatory impacts.
Looking ahead to 2020
We expect to see a continuation of themes in the Power & Utilities deals market in the new year, with yield, access to infrastructure, rebalancing portfolios, and balance sheet rationalization expected to drive deal activity. Renewables will remain as one of the key areas of interest for deal makers as federal incentives phase down/out. Emerging technologies, such as energy storage, are expected to have a gaining impact on deal activity. And lastly, with the recent decrease in interest rates, bid ask spreads and valuations may benefit, which could also have an impact on deal activity.
PwC Deals
Smart deal makers are perceptive enough to see value others have missed, flexible enough to adjust for the unexpected, aggressive enough to win favorable terms in a competitive environment, and circumspect enough to envision the challenges they will face from the moment the contract is signed. But in a business environment where information can quickly overwhelm, the smartest deal makers look to experienced advisors to help them fashion a deal that works.
PwC’s Deals group can advise power and utility companies and private equity firms on key M&A decisions, from identifying acquisition or divestiture candidates and performing detailed buy-side diligence, to developing strategies for capturing post-deal profits and exiting a deal through a sale, carve-out, or IPO. With more than 20,000 deals professionals worldwide, we can deploy seasoned teams that combine deep power and utility industry skills with local market knowledge virtually anywhere and everywhere your company operates or executes transactions.
Although every deal is unique, most will benefit from the broad experience we bring to delivering strategic M&A advice, due diligence, transaction structuring, M&A tax, merger integration, valuation, and post-deal services.
In short, we offer integrated solutions, tailored to your particular deal situation and designed to help you extract peak value within your risk profile. Whether your focus is deploying capital through an acquisition or joint venture, raising capital through an IPO or private placement, or harvesting an investment through the divestiture process, we can help.
For more information about M&A and related services in the power and utilities industry, please visit www.pwc.com/us/utilities or www.pwc.com/us/deals
About the data
We define M&A activity as mergers and acquisitions in which targets are US-based companies acquired by US or foreign buyers, or foreign targets acquired by US or foreign pharmaceutical and life sciences companies. We define divestitures as the sale of a portion of a company (not a whole entity) by a US-based or foreign seller. We have based our findings on data provided by industry-recognized sources. Specifically, values and volumes used throughout this report are based on announcement date for transactions with a disclosed deal value greater than $15.0 million, as provided by Capital IQ, as of March 31, 2019, and supplemented by additional independent research.
Information related to previous periods is updated periodically based on new data collected by Capital IQ for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Capital IQ and includes deals for which buyers or targets fall into one of the PLS industry sub-sectors: biotechnology, medical devices, pharmaceuticals, or other (such as contract manufacturing organizations). Certain adjustments have been made to the information to exclude transactions
