Our latest M&A report reveals a confident global power and utilities (P&U) sector
Dealmaking looks set to continue, underpinned by a buoyant economic outlook on the back of the stronger-than-expected economic turnaround in Europe and positive growth in the US and China. As new technologies begin to impact traditional operating models, divestitures will be a critical component for P&U companies seeking to realign their portfolios for this new operating environment.
Macroeconomic environment and M&A outlook
P&U respondents expect improving economic conditions to drive deal activity. Executives anticipate an increase in M&A activity, and, as competition for P&U assets heats up, utilities will need to be prepared to act fast and with strategic discipline. Deal scarcity, competition for high-quality assets and increasing inflation are seen as the greatest risks to dealmaking.
P&U companies to pursue M&A
P&U companies expect to actively pursue M&A — this trend is set to continue through the year. Dealmaking intentions were clear in the first quarter of 2018, as evidenced in our Power Transactions and Trends report — deal value hit an all-time quarterly high of US$97b.
Competition set to increase
Competition, particularly from financial sponsors, is expected to increase. This will intensify competition for high-quality assets in the deal market, putting upward pressure on valuations and increasing bid-ask spreads.
Growth and portfolio strategy
Portfolio transformation is at the top of the boardroom agenda. P&U companies are keen to divest underperforming assets and invest in developing economies and emerging technology as sector disruption takes hold.
Disruption sees portfolio reviews focus on divesting assets
Top M&A destinations — investors look to developing economies
Brazil has emerged as the top P&U investment destination as corporates move to take advantage of the country’s privatization agenda and government tenders for renewable energy development.
P&U executives continue to be concerned about political uncertainty and say it is the key risk to growth, while rising inflation is cited as the biggest threat to investment plans. But these risks are moderated by increased infrastructure spending and — surprisingly — most executives do not expect US tax reform to impact deal activity.
Political uncertainty remains greatest economic risk while inflation emerges as investment risk
US tax reform won’t impact investment decisions
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