Competition, climate change driving shift in power and utilities sector
CALGARY, June 20, 2016 /CNW/ - Canadian investors buying assets in the US accounted for three of five US power and utilities megadeals in Q1 2016, totalling more than US$18b. This comes as global power and utilities total deal value continued to climb overall, reaching a five-year high of US$44.4b in Q1— a 50% increase over the same period last year, according to EY's latest Power transactions and trends report.
"There's a shortage of regulated and contracted assets in Canada," says Gerard McInnis, EY's Canadian Power & Utilities Leader. "That's driving investors here to look beyond our borders, and increasing the level of competition in deals."
McInnis adds: "Canadian power and utilities companies are generally looking to expand their footprints and expand in high-growth emerging markets. The transactions we saw here in Canada in Q1 align with those strategies."
According to EY's report, overall deal value in the Americas reached US$34b in the first quarter and accounted for 77% of the global total. US megadeals dominated the activity with the country active in five of the region's eight US$1b-plus transactions and contributing US$26b to the total regional deal value.
The Q1 numbers may just be the beginning. Looking ahead, EY's Power & Utilities Capital Confidence Barometer reveals that, globally, 53% of power and utilities executives plan to actively pursue acquisitions in the next 12 months. And 22% have more than five deals in the pipeline, many focused on small and mid-cap deals.
"The traditional utility business model is being challenged as the sector evolves," says McInnis. "There is a new world order as renewables go beyond decarbonisation. Here in Canada, policymakers are taking note. Alberta and Ontario recently rolled out new climate plans. Alberta appears to be targeting producers and Ontario's plan taxes consumers."
Meanwhile, changing customer preferences and shifting consumer behaviours are transforming the business landscape in every sector. Because of that, executives are planning for multiple possible futures.
"Considering mergers and acquisitions to help accelerate strategic plans can often offer companies a competitive advantage," says McInnis. "It's an exciting time to be in the power and utilities sector. Those companies that continue to evolve and embrace all the changes are positioning themselves to quickly adapt to whatever comes their way."
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