Portfolio Optimization Strategies Are Driving Utility Industry Mergers

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Diversification is a Key Objective in These Transactions, Says Booz & Company’s Earl Simpkins; Current Wave of M&A Also Helped by Strengthening Economy

The rise of long-term portfolio optimization goals has played an important role in driving the current wave of utility industry mergers, says Earl Simpkins, a Partner at Booz & Company.

And there are plenty of advantages for consumers.

“With the faster approvals we’ve been seeing lately, customers can reap the benefits of the transaction much sooner. In some cases, that includes a rate freeze over a period of time,” Simpkins explains in Episode 46 of the Mergercast by Booz & Company podcast. Approval times for utility industry transactions have shortened to about 12 months over the past 5 years, down from an average of 16 months in the 1990s.

“Faster approvals also mean that companies are more quickly able to integrate their operations, so they can achieve portfolio benefits associated with the merger,” Simpkins continues.

Indeed, portfolio optimization has become a key strategy in utility industry M&A. “Today,” Simpkins says, “we’re seeing transactions that are really around positioning for growth or portfolio optimization.”

Three factors are supporting this:

  •     The need to fund billions of dollars in capital investments in generation, transmission and distribution;
  •     Uncertainty caused by environmental regulation; and
  •     Fluctuating natural gas prices, which have a significant impact on the economics of power generation.

The strengthening economy is also helping the current wave of transactions.

“Given the deal rationale that we’re seeing now, the need for stronger balance sheets to fund capital investments, a strong economy will help provide the fuel and the basis for making those capital investments over time and so that would lead you to believe that there could be another wave of transactions that are looking to take advantage of shoring up balance sheets in order to best position for future cap-ex growth,” Simpkins says.

Episode 46 of Mergercast by Booz & Company, titled “Utility M&A,” has a run time of 11 minutes and 40 seconds. Listeners can play the podcast on its homepage (http://www.booz.com/mergercast) or subscribe via RSS feed, e-mail, the iTunes store or Stitcher radio.

About Booz & Company
Booz & Company (booz.com) is a leading global management consulting firm focused on serving and shaping the senior agenda of the world’s leading institutions. Drawing on the talents and insights of more than 3,000 people in 58 offices around the world, we help our clients achieve essential advantage by working with them to identify and build the differentiating capabilities they need to outperform.

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Sharon Bially
MBS Value Partners
+1 (508) 655-2676
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