Leadership Lyceum

Leadership Lyceum: A CEO’s Virtual Mentor

This podcast series focuses on corporate and industry strategy and trends from the direct vantage point of key industry leaders. Subscribe to the podcast at Apple iTunes. Interviews with Tom Fanning and Bob Flexon are available, as well as one with Joe Rigby, Bob Skaggs and Les Silverman.

See Podcasts

Public Utilities Reports

PUR Guide Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Repeatable M&A: Creating a Value Chain Reaction

How building capabilities for repeated M&A can increase shareholder value.

Fortnightly Magazine - April 15 2002

Despite significant recent upheavals, the energy industry's long-term consolidation is likely to continue. Many companies appear to be moving towards, or have announced, consolidation strategies in their preferred areas of the industry. (see Table 1)

Nonetheless, PwC Consulting's analysis shows that, as in most other industries, few energy acquisitions in the last few years have created above average value. Why? It appears that Wall Street has perceived some deals from the start as not creating value, because of insufficient or unclear strategic rationales, and/or because the Street did not believe that the companies could or did execute those deals well. In PwC Consulting's analysis of 50 recent M&A transactions, 30 were in this category, including NiSource's acquisitions of both Bay States and Columbia. The Street saw 11 other transactions initially in a positive light, but found that implementation was more problematic than expected-for example, although post-announcement share prices performed better than the S&P utility index, National Grid's NEES and EUA deal ultimately led to share price performance below the index, perhaps due to difficulties meeting merger synergy expectations. Only nine transactions have been seen as value-creating from two weeks before deal announcement, through a year after announcement. The market is tough on M&A transactions; expectations, once set, need to be met. 

More formalized approaches to integration of repeated M&A transactions may be needed to ensure more value creation in the future, as consolidation continues. Experience in other industries shows that real value, and strong long-term competitive positioning, can result from building a well-oiled and smoothly functioning "acquisition engine"-the ability to acquire a series of companies, businesses, and assets, and to integrate them effectively and quickly, i.e. in a value-creating manner. 

Simply knowing that integrating repeated M&A transactions is a developed competency creates value-Wall Street will recognize and reward a company's strong integration track record. The company can be confident that, if value-creating targets can be found, and the right price and other terms negotiated, the next deals will go smoothly. Regulators will be comfortable that this company knows what it is doing, improves value for customers as well as shareholders, and has an acceptable success record. And selling or merging companies will know that the company will treat their people and customers fairly and quickly. 

A key to such success is