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Repeatable M&A: Creating a Value Chain Reaction

How building capabilities for repeated M&A can increase shareholder value.
Fortnightly Magazine - April 15 2002

deal, and would pass regulatory review? How about outsourcing some regulated IT and other administrative and operational functions in advance, by creating a jointly-owned unregulated shared services entity that sells services to both companies? And that perhaps can sell services to other utilities too?

Almost by definition, if a "repeatable machine" has not been built consciously, value creation will be sub-optimized. Utilities that don't prepare for further consolidation cannot maximize value to their shareowners-because they cannot maximize value from buying other companies, or because they will not realize the highest value if someone else buys them. Worse yet, if they're not prepared, they may never be acquired.

Making Repeatable M&A Work for Utilities

The essence of repeatable M&A is seeing and doing transactions as part of a continuing stream of deals that, together, and over time, will create value. It includes leveraging prior M&A experience, so that value creation can begin as soon as possible after a deal is conceived-often, as indicated, before regulatory approvals occur. That means that the buying company must create an accurate and comprehensive vision for deals and the means for their completion. The company must spread this information to the right team(s) of people, and refresh it as further M&A experience accumulates. The knowledge base must consist of a standard integration approach and a practical methodology, plus the tools to support the methodology, including templates and checklists, management practices, training programs and mobilization routines-and all must be consistent with the anticipated type of acquisitions, e.g., scale, skill transfer, etc.

If a utility seeks to develop the capabilities required for repeated M&A success, it should address fundamental questions about its (and others') past M&A experiences, such as:

  • Where was value created in past deals, how quickly was progress made, and how did that happen?
  • Where did expected value creation not happen, or where was it seriously delayed, and why?
  • How well did the integration team(s) work? Why?
  • What other problems faced the integration teams, and why did they arise?
  • What other successes were achieved? How?
  • What other important barriers were encountered?
  • What lessons can be learned from this experience, from others in the utility industry and elsewhere?

Then it will need to define its preferred future post-deal integration model, including core principles and practices. The next major step may be to develop a test program for the new model, for use in the next M&A deal it undertakes. Finally, it will need to evaluate the model program's success, modify the model itself, and re-train individuals who might form the next deal teams.

There will always be problems in repeated energy and utility M&A transactions, yet an insightfully-structured approach to a series of post-M&A integrations will, in each deal:

  • Increase the likelihood of achieving strategic and financial goals, by creating value sooner, and as extensively as anticipated
  • Eliminate much of the noise and uncertainty involved in managing the integration process
  • Lead to less negative impacts on customers, and more positive effects
  • Lead to less stress and happier employees in the integrating organizations.

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