The power and renewables M&A market saw total value hit $293 billion last year, up from $199 billion the year previous. In the US a number of mega deals saw total value surpass recent decade highs, while in Asia Pacific and Europe, deal volumes were boosted as companies bought up renewables and transformation innovation.
The power and renewables industry continues to face considerable flux as a range of factors, from digitalisation to sustainable transformation, affects the industry. In a new report from PwC, titled ‘Power & Renewables Deals 2017: what lies ahead for M&A?’, the firm explores last year’s global power and renewables M&A market trends, as well as projections for the coming year.
The research notes that 2016 was a buoyant year for the market, as the search for yield, inorganic growth and transformation spurred companies to leverage M&A. In total, last year saw substantial deal values relative to the year previous, up from almost $199 billion to hit almost $293 billion.
Total deal value was also up considerably on five years previous, at almost doubled the value of 2012 and 2013, at $149 and $151 billion respectively. North America remains the key market place for deals, totalling 57% of total value, followed by Asia Pacific on 18% and Europe on 17%.
The research also considers how 2017 will look, particularly in the face of a host of political and market structural challenges. One market dampening effect noted by the firm is rising interest rates and changes to regional economic outlooks – both effects are, the firm argues, likely to see momentum slow. Climate change politics, particularly in the face of the Trump Presidency, are not – the firm believes – likely to significantly dampen the industry’s turn towards renewables and climate change mitigation. Renewables deals continue to grow in frequency, now comprising more than half of global deal volume.
The market for transformation towards a decarbonised energy net remains formidable, as do key technological conditions, such as energy storage, distributed generation, electric vehicles and smart grids. In light of the transformation of the wider network towards renewables, companies in the industry are increasingly focusing on acquiring capabilities, through acquisitions in key renewables, future network technologies and the customer facing space.
In terms of regional activity, North America drove last year’s large result as total deal value for the region hit $167 billion across 207 deals. Deal volume was down slight on the years previous, during which deal volume hit 259 and 220 respectively. The large spike in deal value was largely due to a number of mega deals, including the $47 billion merger of Canada’s Enbridge and US' Spectra Energy, forming the largest energy infrastructure company in North America. Four further deals, each at more than $10 billion, were also recorded last year.
Going into 2017, considerable uncertainties around the effects of President Trump on the market remain, while expected interest rate rises are likely to dampen M&A activity.
In the Asia Pacific deal volume far surpassed that of North America, jumping to 315 deals from 2015’s 305 deals. Deal value, however, saw a slight decrease, falling from $66 billion to $50 billion. While deal volumes have been relatively high since 2013, deal values have only in the past two years surpassed the $50 billion mark. Many of the deals last year were in the renewables segment, at 198, up from 151 the year previous.
The firm expects that China and Australia will continue to be key deal makers in the year ahead, seeking to buy up strategic targets, particularly in foreign markets. Chinese investors have signalled interest in continuing to invest in Australia and South America in large scale deals.
Europe has seen a volume decrease, falling from 326 deals in 2016 from 450 deals in 2012. Deal value has remained relatively stable however, at $49 billion last year compared to $55 billion in 2012. Europe too has seen a large amount of deal activity in the renewables space in 2016, at 190, down slightly from 194 the year previous.
Political uncertainty remains one of the factors going into 2017, as France, the Netherlands and Germany head to the polls and Brexit becomes an ever thornier issue across the continent. However, the market has for some time now dealt with similar uncertainties. Key economic conditions in Europe, such as low interest rates and low growth, are likely to see continued interest for the relatively stable returns offered by regulated network assets. A lack of available targets may be a key limiting factor going forward.