M&A in power and utility industry – YTD Sep 23

Amidst the dynamic P&U landscape in Q3 2023, disruptions like the war in Ukraine and supply chain increased financing costs, while advancements such as the EU's energy independence opened doors to new deal opportunities. Overall, M&A activity remained resilient, with 545 deals totaling USD 56.0 billion, marking a modest 6% decline in deal volume and a 21% decrease in deal value compared to Q3 2022. The rate base, a key metric for evaluating M&A transactions, witnessed investor-owned utilities in the US requesting rate hikes of USD 17.2 billion in 2023, representing a 2% increase from 2022.

Looking ahead, M&A in the P&U industry is expected to be influenced by numerous factors, including the ongoing energy transition, technological advancements, investor interests, and regulatory policies. Utility companies continue to face challenges in renewable and traditional energy infrastructure development due to regulatory hurdles and mounting inflation pressure. To address these obstacles, P&U companies are likely to adopt a cautious and rigorous approach to project development in 2024. Despite these challenges, the P&U industry outlook for renewable energy investments remains attractive due to existing policy incentives across various regions globally.

In the remainder of 2023, M&A activities are likely to remain subdued due to continued regulatory and consumer uncertainty. Large utilities will focus on repositioning their businesses towards energy security, decarbonization, and energy transition-aligned themes. Additionally, P&U companies are expected to prioritize portfolio optimization and rationalization strategies to strengthen their balance sheets and reinvest capital into critical strategic priorities. The high interest-rate environment could lead to restructuring and potential distressed M&A, with market conditions favoring larger utility companies positioned to acquire more levered or financially constrained competitors.

Piyush Mittal
Group Manager, Corporate and Investment Banking LoB Posts
Bhavesh Kumar
Senior Manager, Corporate and Investment Banking LoB Posts

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