According to new research, mergers and
acquisitions in the US electric utilities sector looks set to maintain steady
growth in the coming years. The ‘US Regulated Utilities: Expansion,
Diversification Goals Continue to Support Steady Utility M&A’ report from
Moody’s Investors Service, found that recent major deals in the sector have
often been credit neutral due to their financing coming from equal parts debt
and equity.
Future deals could well alter the credit-neutral history if their structure and execution shifts, the research found. Slow growth in the electricity usage arena has led to many utilities widening their search beyond their service territories in order to expand.
“Load growth has been moderating in recent years, the slower pace driven primarily by energy conservation and efficiency, increased distributed generation and the economic downturn,” said Moody's analyst, Jeffrey Cassella.
“The slower growth has pushed some utilities to look beyond their service territories for additional load growth in areas that are growing faster than the national average,” he added.
Major utilities such as Duke Energy Corp, MidAmerican Energy Holdings Co. and Exelon Corp look likely to turn to new acquisitions in order to fulfill their diversification and expansion desires. By following the acquisition and expansion path, they aim to boost the predictability of their cash flow and, in turn, their operational efficiency as they “spread operating and maintenance costs over a wider customer base,” the report read.
Meanwhile, smaller firms in particular look to be considering mergers in order to lower their overhead costs as a result of falling returns on equity among the utilities. Smaller utilities could also be planning to merge or acquire another utility in the hope of protecting jobs and staving off any vultures hunting for a potential acquisition target.
Future deals could well alter the credit-neutral history if their structure and execution shifts, the research found. Slow growth in the electricity usage arena has led to many utilities widening their search beyond their service territories in order to expand.
“Load growth has been moderating in recent years, the slower pace driven primarily by energy conservation and efficiency, increased distributed generation and the economic downturn,” said Moody's analyst, Jeffrey Cassella.
“The slower growth has pushed some utilities to look beyond their service territories for additional load growth in areas that are growing faster than the national average,” he added.
Major utilities such as Duke Energy Corp, MidAmerican Energy Holdings Co. and Exelon Corp look likely to turn to new acquisitions in order to fulfill their diversification and expansion desires. By following the acquisition and expansion path, they aim to boost the predictability of their cash flow and, in turn, their operational efficiency as they “spread operating and maintenance costs over a wider customer base,” the report read.
Meanwhile, smaller firms in particular look to be considering mergers in order to lower their overhead costs as a result of falling returns on equity among the utilities. Smaller utilities could also be planning to merge or acquire another utility in the hope of protecting jobs and staving off any vultures hunting for a potential acquisition target.
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