- Globally, electric utility deal volume totaled about $56 billion in the first six months of 2016, up from $16 billion in the year-ago period, according to data compiled by Bloomberg.
- In North America, electric utility deals totaled $35 billion in the first six months of the year, compared with $5 billion for the same period last year, the data showed.
- Big deals, such as the $8.6 billion combination of Great Plains Energy and Westar Energy and Fortis’ $11 billion buyout offer for ITC Holdings, represent premiums to forward price-to-earnings, a positive indicator for future deals.
A volatile stock market and flat load growth are fueling a surge in utility merger and acquisition activity. Earlier this year, Dominion Resources struck a deal to buy natural gas distributor Questar Corp. for $4.4 billion in an all-cash deal, and Exelon closed its $6.8 billion acquisition of Pepco though the deal merger could face legal hurdles.
The U.S. and Canada accounted for 63% of the $56 billion in utility M&A deals announced in the first six months of the year, even as total global deal volume drop by about 13%, according to Bloomberg.
“It has been an amazing volume of utility M&A,” Stephan Feldgoise, Goldman Sachs Group’s co-head of Americas M&A, told Bloomberg.
“Electricity demand growth is flat in many areas,” Feldgoise said. In addition, “there’s pressure, especially on smaller, sub-scale utilities to invest in infrastructure where scale matters, such as in cyber security." He said Canadian utilities seeking to expand beyond their borders and Canadian funds seeking to invest in U.S. infrastructure could still be looking for deals.
Analysts at UBS Securities told Bloomberg during the Talen deal that Canadian power players are drawn to the U.S. market due to high demand growth in certain regions and the financially viable regulatory model for U.S. utility companies.
Looking ahead, however, the brisk pace of M&A deals could put a damper on new deals. “There may be a decrease in available targets,” John Lange, head of global power and utilities at Barclays, told Bloomberg.