Consolidation in the U.S. regulated utility sector will continue at a moderate pace over the next several years, according to a new Fitch Ratings report. The industry’s fragmented structure and the potential to realize meaningful economies of scale will drive further M&A activity, continuing the trends seen in 2010-11.
Capital market conditions are favorable for utilities, with low interest rate and attractive equity valuations providing a favorable backdrop for merger activity.
Fitch believes financial buyers may be more interested in smaller utilities operating primarily in a single state, while strategic buyers pursue larger utility holding companies.
MidAmerican Energy Holdings (MEHC), Xcel Energy (XEL), and NextEra, among others are potential industry consolidators. MEHC, a wholly owned subsidiary of Berkshire Hathaway, operates in multiple jurisdictions with a proven track record in M&A.
Companies with market capitalization of $5 billion and under and book multiples less than 1.3x represent better financing opportunities are more likely acquisition targets. In its report, Fitch has identified 11 regulated utilities that meet these requirements.
For details, see the full report U.S. Regulated Utilities M&A