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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
  • once a transaction closes;
  • Unclear responsibilities and accountabilities for those actions.

Table 1 offers a framework for thinking about how value creation requires both doing the right deal, and doing the implementation right. It also shows common substantive problems in doing a deal that inhibit the creation of value. PwC Consulting's analyses, and those of many academics and other observers, show that value creation in a deal requires combining fast moves according to a clear and prioritized "blueprint" or action plan, with early and notable successes. This demands effective leveraging of existing initiatives in both companies, consistently effective coordination and management, and consistently good execution.

If a company anticipates doing multiple transactions, the problems are greatly compounded. How much value can be lost if the hard-earned lessons from each deal are not assessed and addressed effectively in future transactions? There aren't many clear answers to this question. Yet it makes intuitive sense that "re-inventing the wheel" for multiple M&A transactions cannot be value-creating, given the impacts of a poor M&A track record and the resulting importance of deal-making successes to boards and top executives.

The entire approach to serial M&A deal completion and integration must be conceived well in advance, adapted somewhat to each transaction, and refreshed as lessons accumulate from each deal.

What Can Be Done In Utility M&A Deals?

Many believe that its complexities and semi-regulated nature make the utility industry unique-as much in M&A transactions as in other aspects. Surely the requirements for approval from the alphabet soup of regulatory agencies-FERC, NRC, multiple PSCs, DOJ, FTC, state AG's, and the SEC-each with its own agenda and review processes, and many possible intervenors, excuse the industry from needing to adopt a more structured approach to managing "a few" M&A transactions through to success? A common attitude is: "We're not sure that this deal will proceed, let alone the way we want it to, so we can't do too much planning for implementation now".

For those who aspire to be dominant players, there won't be just "a few" transactions. Transactions will continue, but will also include more selective purchases of generation and gas supply assets or transmission networks, unlike the traditional merger of equivalent vertically integrated utilities. So a series of deals will result.

And many things can be settled usefully long before closure in utility M&A deals. Many common issues that utilities encounter also occur in other industries. Understanding prior experience and learning from past mistakes is always useful. Developing a structured approach to a future series of deals provides clarity about how the company intends to proceed when the right time comes. For example, each issue in a utility's review of its recent M&A experience was avoidable. Some were industry-specific, some were not-but all could have been mitigated, if not eliminated, by more conscious planning and preparation up front.

After a deal's announcement, almost all integration planning can be completed before closure. Physical integration of regulated operations cannot occur pre-closure. But some sensible value-creation combinations can still occur. For example, what functions would be worth combining regardless of the