How building capabilities for repeated M&A can increase shareholder value.
Michael Bier is a director in the Strategic Change section of PwC Consulting’s Energy Industry practice. He has over 20 years of diverse consulting experience working for utilities, other energy companies and clients in many other industries, in strategic M&A, market assessment and entry strategies, corporate transformation and cultural change, and CRM. Mark Ciolek is a partner in the Strategic Change section of PwC Consulting’s Energy Industry practice. He has been a consultant to the utility industry for more than 15 years and is a leader in PwC Consulting’s Strategic Mergers and Acquisition practice. Ciolek is actively involved as an advisor to several US and European energy companies pursuing aggressive M&A activity on a global basis.
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.