Aggressive pricing drives power and utilities acquisitions

Worldwide, power and utilities companies are showing a strong desire to do deals in 2014, finds an EY survey. But, they’re still dealing with uncertainty when it comes to pricing those deals.

“We’ve already seen a strong start to the year with global deal values the highest they’ve been in the sector in three years,” says Gerard McInnis, partner in EY’s Power & Utilities practice. “In Canada, we’re seeing deals driven largely by U.S. entities looking for opportunity outside their own service territories.”

Global deal volumes should continue to increase, shows EY’s latest industry survey. The survey indicates 69% of respondents expect deal volumes to improve, and another 33% plan to pursue an acquisition in the next 12 months.

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“High demand and competition for Canadian assets—from the U.S. and other foreign entities—is driving up the rate base and resulting in assets being sold at a healthy premium,” explains McInnis.

But despite continued regulatory and market uncertainty, evidence suggests the valuation gap is shrinking as the dealmaking environment gets busier, he adds.

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Transactions aren’t the only growth strategy Canadian power and utilities companies are undertaking: 38% of executives cite cost reduction as a primary area of focus.

“Increased regulatory oversight and heightened stress on earnings have prompted utilities to optimize their operations and rebalance their portfolios,” says McInnis.

“And with M&A a major component of utilities’ growth agenda over the next year, keeping costs under control can also serve companies well if they decide to take advantage of increased appetite for deals.”

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.