Dive Brief:
- There was minimal merger and acquisition activity in the utility space during the third quarter of this year, but according to PricewaterhouseCoopers (PwC), the deals that were announced highlight the "diversity of opportunities within the sector" along with the continued strength of renewables.
- In its quarterly analysis of utility deals, PwC on Wednesday said transaction value declined to $7 billion in Q3, "making it the lowest-value quarter since Q2 2017." There were 10 deals announced, compared with 13 in the second quarter.
- Looking ahead to Q4, PwC analysts say they expect yield, access to infrastructure, balance sheet rationalization and other factors to drive deal activity. The fourth quarter could get off to a solid start: less than two weeks ago news surfaced that Avangrid and PPL Corp. are considering a $67 billion merger.
Dive Insight:
In the absence of what PwC calls "mega-deals," which are larger than $5 billion, the third quarter had the lowest deal value since 2017 Q2 and lowest deal volume since 2017 Q3. But the deals that were announced varied widely, "shedding a positive light in the diversity of opportunities within the sector," according to PwC's report.
Key announcements included Ontario Power Generation striking a deal to acquire gas-fired generation from TransCanada Energy for $2.2 billion, and NextEra Energy Partners agreeing to acquire Meade Pipeline for $1.4 billion. In August, Antin Infrastructure Partners announced a plan to spend $1.2 billion to buy Veolia Environnement’s district energy business, including cogeneration.
In its report, PwC noted that Q3 saw "smaller deals spanning fossil generation, pipeline, renewable, district energy, retail, and storage." Renewables accounted for 50% of the quarterly deal volume and 19% of deal value.
Looking ahead, the firm said it expects "a continuation of themes including yield, access to infrastructure, rebalancing portfolios, and balance sheet rationalization being top of mind for deal makers."
"Total deal value continued to shrink in the third quarter as mega-deals proved hard to find," Jeremy Fago, PwC's head of U.S. power and utilities deals, said in a statement. "Asset deals, particularly on the renewables side, held volumes steady."
Following a robust stretch of 2018 that saw utility consolidation spike, deals have slowed this year. The Avangrid-PPL deal, which if completed would create one of the largest utilities in the U.S., could signal a shift. And PwC's analysis notes the recent decrease in U.S. interest rates could favorably impact bid-ask spreads and valuations, "which could impact deal activity."
