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Power and utilities: US Deals 2024 midyear outlook

Providing a deals spark: resiliency, decarbonization and growth strategies 

A wave of activity in regulated and renewable asset classes closed out 2023 in power and utilities. The trend continued in early 2024, as resiliency, decarbonization and growth strategies have continued to spark deal activity. Notably, higher-value deals in the sector underscored a seller-driven deal thesis, including capital considerations to strengthen balance sheets and improved credit profiles to support resiliency and decarbonization efforts. Buyers were driven by expansion and growth, seizing on opportunities to enhance operations and leverage financial capacity.

  • Regulated utility deals made up 56% of total deal value ($21 billion).
  • Renewables continued to drive M&A activity with 48% of total deal volume, contributing just over $11 billion. This is driven by continued support from the Inflation Reduction Act (IRA) and decarbonization strategies.
  • Interest in the sector from a wide range of investors continued: Inbound investors and strategic investors contributed 61% and 72%, respectively, of total deal value.
  • While corporate and asset deals split deal volume, corporate deals drove deal value, with more than $30 billion.

Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.

How market conditions are impacting M&A strategy

Inflation, the rising cost of capital, supply chain constraints and regulatory pressures have created industry headwinds. Divestitures remained an avenue to strengthen balance sheets and improve credit profiles to allow for core strategic organic growth. Industry participants with operational and financial advantages looked to the deals market to add inorganic growth opportunities and platforms, supported by financial capacity. Further, government stimulus, such as the IRA, continued to aid and drive decarbonization strategies, both organic and inorganic. The IRA has extended the runway for existing tax credits for wind and solar power, while also introducing new incentives and funding for investment in transmission, carbon capture, hydrogen and other clean technologies.

Navigating uncertainty, macroeconomic factors remain critical

What’s now?

While bipartisan support for decarbonization efforts has been on the rise, the 2024 US presidential election may inject uncertainty into the market, due to potential federal policy shifts. Macroeconomic pressures continue to linger, as interest rates remain relatively high compared to the past 15 years. Balance sheet strength will likely drive divestment and investment strategy. 

What’s next?

Navigating uncertainty and macroeconomic pressures will be critical in the coming year for dealmakers. Industry participants should continue to strengthen and sharpen corporate strategy, evaluate deal execution and find ways that the M&A market can drive strategic outcomes. We expect dealmakers to continue to use the deal market strategically to advance capital considerations, either through strengthening their balance sheets or capital profile, or by using available financial capacity to secure growth opportunities. Having a foundational strategy that supports long-term growth, while also having the flexibility to adjust due to policy flux, may allow for optimal outcomes in the deal market. 

The bottom line

Resiliency, decarbonization and growth strategies have catalyzed power and utilities deals. Looking forward, we expect federal policies, such as the IRA, to continue supporting decarbonization investment strategies. This, along with a continued broad base of investor interest in the sector, will spur industry participants to use the deals market to optimize capital and growth strategies.

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