- Merger and acquisition (M&A) activity in the utility sector fell for the third consecutive year in 2019 and featured only one announced deal larger than $5 billion, according to PricewaterhouseCoopers (PwC).
- Announced deal value totaled $43 billion last year, according to the firm's data, marking a significant decline from the $157 billion in total deal value in 2016.
- Analysts say strong interest in renewable energy is likely to drive deals in 2020 and more mega-deals are expected —though a return to 2016 levels is unlikely as industry consolidation has limited the potential number of acquisitions and dealmakers.
M&A activity in the fourth quarter closed out 2019 on a strong note, with 13 total deals announced in the last three months including the year's sole mega-deal.
Canada Pension Plan Investment Board announced in November it plans to acquire Pattern Energy Group in an all-cash transaction for about $6.1 billion. That deal is expected to close by the second quarter of this year and accounted for a large chunk of the fourth quarter's total deal value, according to PwC.
The fourth quarter's $16 billion in announced deals was the strongest since the $23 billion second quarter of 2018, and marked renewed interest from financial investors. Deal value in the fourth quarter more than doubled the $7 billion that was announced in the third quarter of 2019.
"Financial players returned to the forefront of deal activity, particularly as it relates to deal value with significant available investment capacity," Jeremy Fago, PwC's head of U.S. power and utilities deals, said in a statement. He said strategic purchasers "continue their focus on digestion of previously announced mega deals."
Renewable deals accounted for 43% of deal value in the fourth quarter, and that trend is expected to continue. PwC also said emerging technologies like energy storage will have a growing impact on deal activity
"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," PwC said in a research note published last week. "Renewables will remain as one of the key areas of interest for deal makers as federal incentives phase down/out."
Wind and solar energy are expected to be fast-growing sources of generation as tax incentives are reduced, analysts have told Utility Dive. The U.S. Energy Information Administration expects wind power to grow 14% this year, as the production tax credit expires. The solar energy investment tax credit phases out in 2022.
"We believe we will see mega deals this year but not to the level of 2016 or 2017," Fago said in an email to Utility Dive. "Many mega deals announced in recent years were a function of buying platforms to deploy capital into, and therefore drive growth organically long term, which is what we see many of those dealmakers from 2016, 2017 and 2018 focusing on now versus serial M&A."
In addition, Fago said there is a limited number of serial mega deal market players "as the industry has undergone significant consolidation over the past several years."
Total utility sector deal value decreased by 41% in 2019. There were $72 billion in deals announced in 2018, spread across 68 transactions, compared with $42 billion in 2019 deal value across 52 deals.