Global Capital Confidence Barometer, May 2016: Power and Utilities | 14th edition
New competition and customer demands drive P&U dealmaking
Our 14th Power and Utilities (P&U) Capital Confidence Barometer reveals that utilities across the globe are changing their approach to investment. Capital agendas are increasingly shaped by disruptive industry trends including distributed generation, low-cost renewable power, market reforms, energy technologies, new market entrants and changing customer expectations.
Confidence moderates as instability impacts the sector
While almost half (46%) of P&U executives see the global economy as stable, only 43% expect the economy to improve, compared with 81% six months ago. Increased political instability and volatility in commodity and currency markets are respondents’ top two risks.
Alliances boost customer base and enhance capabilities
Cost reduction will still dominate boardrooms over the next 12 months but most utilities’ growth strategies will be built around risk management (49%) and improving operations (51%). Much of the desire to enhance how things are done comes as rising customer expectations and competition from new entrants disrupt utilities’ “business as usual”. Nearly one-third of our respondents say customer behavior is one of the most disruptive factors in the sector.
In response, more utilities are exploring partnerships and alliances to increase their customer base, enhance capabilities and drive growth. More than a third (39%) of respondents indicate that they plan to enter into alliances with other companies, while the same percentage says that gaining access to new technology is the main reason they would consider buying outside their sector.
Positive outlook strengthens deal intentions
The disruptive trends shaping the sector, as well as advancing energy reforms in many markets, mean that the strong deal momentum of 2015 looks set to continue this year. (See our Power transactions and trends report for full details of Q1 deal activity.)
More than half of our survey respondents said their company will actively pursue acquisitions in the next 12 months, with many looking to access new capabilities to drive growth. Key findings regarding deal intentions include:
- Small and mid-cap deals are in focus – 59% of respondents said that their largest planned deal size over the next year is less than US$250m. (We’ve still seen more than 40 billion-dollar-plus deals over the last three quarters, with more to come.)
- Renewable energy deals should pick up as utilities adapt to a clean-energy focused regulatory environment
- One-third of P&U executives expect to see more distressed asset sales in the next 12 months, particularly in Europe where valuations of conventional generation assets have deteriorated significantly
- The majority (52%) of P&U executives expect asset prices to stay stable over the next 12 months
Top investment destinations
Almost three-quarters (70%) of survey respondents said they would consider a cross-border deal in the next 12 months.
Read why these markets are attracting investment in our full report.