Power and utilities M&A hit $200bn in 2017, reveals new report

BY Fraser Tennant

Mergers & acquisitions (M&A) in the power and utilities sector reached an eight-year high in 2017, seeing 516 deals with a total value of $200.2bn, according to a new report by EY.

In its ‘Power transactions and trends: 2017 review and 2018 outlook’, EY reveals that 2017 saw a 57 percent year-on-year rise in renewables deal value to $42.8b globally, with the US particularly strong – up 71 percent compared to 2016.

Indeed, renewable energy tops the growth agenda in the Americas, with US deal value reaching $102.2bn – the highest recorded level of global investment. Furthermore, networks represented $29.4bn of total Americas deal value, while $28.4bn was attributable to integrated assets, $24bn to generation and $14.2bn to renewables.

“In the Americas, 2017 was marked by three investment themes,” said Matt Rennie, EY global power & utilities transactions leader. “Network assets continued to be highly attractive to investors seeking yield in a low interest rate environment, renewable energy investment activity remained strong, driven in part by ongoing support at state level and investments in energy technology start-ups continued to gain prominence – particularly on the west coast of the US.”

The EY report also notes that investors are continuing to look to yield investments for long-term, stable returns amid low interest rates and excess capital.

“2017 was a formative year in power and utilities transactional activity,” continues Mr Rennie. “Investments in the conventional energy sector were dominated by the changing generation mix, as renewable energy continued to account for an increasing proportion of the system, and low interest rates again drove yield capital toward regulated networks.”

According to EY, last year also saw a resurgence in M&A involving independent power producers (IPP), particularly in Europe and the US, where IPP deals more than doubled in value – from $15.2bn to $33bn year-on-year. In addition, over the last two years, new energy-focused start-ups raised $746m of funding (series A and B), of which $253m was focused on energy services.

In terms of European deal value, 2017 was similar to 2016 levels, an 11 percent increase in volume to 213 deals. Renewables contributed 30 percent of total deal value, with networks accounting for 27 percent and generation 26 percent. In Asia-Pacific, renewables deal value grew 72 percent year-on-year to $13.5bn.

Mr Rennie concludes: “We also saw the new energy market continue to grow in both scale and importance. As technology companies increasingly become a mainstream contingent within the electricity system, we expect them to focus on arbitraging network peaks and to focus on the long-term needs of a decentralised future energy market.”

Report: Power transactions and trends: 2017 review and 2018 outlook

Standard Life Aberdeen sells insurance business to Phoenix in £3.2bn transaction

BY Fraser Tennant

In a significant expansion of their existing long-term strategic partnership, Standard Life Aberdeen plc has sold its capital-intensive insurance business to Phoenix Group Holdings in a transaction valued at £3.2bn. 

The sale involves the disposal of Standard Life Assurance Limited (SLAL), with Standard Life Aberdeen retaining its UK retail platforms and financial advice business. The businesses transferring to Phoenix as part of the sale include the UK mature retail and spread/risk books and the Europe, UK retail and workplace businesses.

Founded in 1825, SLAL is one of the UK’s oldest life and pensions businesses. Primarily based in the UK and with operations in Ireland and Germany, SLAL is a leading provider of long-term savings and investment propositions, serving around 4.5 million customers and clients.

“This transaction completes our transformation to a capital light investment business, a process started in 2010 with the sale of Standard Life Bank, continuing with the sale of our Canadian business and the merger last year between Standard Life and Aberdeen Asset Management,” said Sir Gerry Grimstone, chairman of Standard Life Aberdeen. “This transaction represents excellent value for our shareholders, including a comprehensive and mutually beneficial strategic relationship entered into with Phoenix, a longstanding partner of the firm.”

In addition, subject to normal commercial and governance constraints, Phoenix has committed to review further investment management mandates not currently managed by Aberdeen Standard Investments, which will be its preferred asset management partner for insurance investment solutions, as well as future consolidation opportunities.

“This is a compelling transaction for Phoenix, consistent with its stated strategy and acquisition criteria,” said Clive Bannister, Phoenix’s chief executive. “The acquisition establishes Phoenix as the pre-eminent closed life fund consolidator in Europe with more than 10 million policyholders and supports a significant increase in Phoenix’s cash generation. The reinforced strategic partnership with Standard Life Aberdeen allows both companies to focus on their key strategic strengths while generating future value.”

Conditional upon the approval of Standard Life Aberdeen’s shareholders and upon relevant regulatory approvals, including from the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA), the sale is expected to complete in the third quarter of 2018. 

Martin Gilbert and Keith Skeoch, co-chief executives of Standard Life Aberdeen, concluded: “With the foundations of a world-class investment company in place we look forward to capitalising on the opportunities that we see ahead of us whilst continuing to deliver for our shareholders.”

News: ‘Standard Life Aberdeen sells insurance business for over £3bn’

CEO ‘disconnect’ a cyber concern

BY Richard Summerfield

Though cyber security is one of the biggest issues of our time, a misalignment between CEOs and technical officers, including CIOs, CTOs and CISOs, is weakening many organisations’ cyber security postures, according to a new report from Centrify titled ‘CEO Disconnect is Weakening Cybersecurity’.

The report, which saw over 800 executives surveyed by Centrify and Dow Jones Customer Intelligence, suggests that discord among C-suite leaders is leaving companies increasingly vulnerable to attack. The report claims that “the CEO response to cybersecurity is misaligned with reality”.

Sixty-two percent of CEOs cite malware as the primary threat to cyber security, compared to only 35 percent of technical officers. Only 8 percent of all executives stated that anti-malware endpoint security would have prevented the “significant breaches with serious consequences” that they experienced. Technical officers believe that identity breaches – including privileged user identity attacks and default, stolen or weak passwords – are the largest threat companies face, not malware.

Poor investment decisions made by CEOs – 60 percent of CEOs are investing the most in malware prevention and 93 percent indicate they already feel ‘well-prepared’ for malware risk – and poor communication between CEOs and technical officers are further cause for concern. Eighty-one percent of CEOs believe that they are most accountable for their company’s cyber security strategy, while just 16 percent of technical officers agree. Seventy-eight percent of technical officers believe that they are most accountable for the company’s strategy.

“While the vast majority of CEOs view themselves as the primary owners of their cybersecurity strategies, this report makes a strong argument that companies need to listen more closely to their Technical Officers,” said Tom Kemp, chief executive of Centrify. "It’s clear that the status quo isn’t working. Business leaders need to rethink security with a Zero Trust Security approach that verifies every user, validates their devices, and limits access and privilege.”

To bridge the gap between CEOs and technical officers, the report suggests that all parties must share their perspectives on the issues surrounding cyber security, but ultimately CEOs must alter their understanding of the threats they face. While malware is an issue, CEOs must change their mindsets, realign their cyber security spending and focus more heavily on the importance on combating identity breaches.

Report: CEO Disconnect is Weakening Cybersecurity

AI fears abound

BY Richard Summerfield

Artificial intelligence (AI) and machine learning have the potential to revolutionise many aspects of our professional and personal lives. In the decades to come, the potential benefits to be gained from embracing technology solutions will be remarkable. That said, the negative impact of AI and machine learning is widely debated, and it may have unintended consequences.

The risk of immoral, criminal or malicious utilisation of AI by rogue states, criminals and terrorists will grow exponentially in the coming years, according to 'The Malicious Use of Artificial Intelligence: Forecasting, Prevention, and Mitigation' report. The report is authored by 26 experts in AI, cyber security and robotics from universities including Cambridge, Oxford, Yale, Stanford and non-governmental organisations, such as OpenAI, the Center for a New American Security and the Electronic Frontier Foundation.

Yet despite the potential risks posed by malicious actors, many institutions are wholly unprepared. For the authors, over the course of the next decade, the cyber security landscape will continue to change and the increased use of AI systems will lower the cost of a cyber attack, meaning that the number of malicious actors and the frequency of their attacks will likely increase.

“We live in a world that could become fraught with day-to-day hazards from the misuse of AI and we need to take ownership of the problems – because the risks are real. There are choices that we need to make now, and our report is a call-to-action for governments, institutions, and individuals across the globe,” says Dr Seán Ó hÉigeartaigh, executive director of Cambridge University’s Centre for the Study of Existential Risk and a co-author of the report.

In response to the evolving threat of cyber crime and the potential misappropriation of AI, the report sets forth four recommendations. First, policymakers should work with researchers to investigate, prevent and mitigate potential malicious uses of AI. Second, researchers and engineers in AI should take the dual-use nature of their work seriously, allowing misuse-related considerations to influence research priorities and norms. Third, organisations should identify best practices where possible in research areas with more mature methods for addressing dual-use concerns, such as computer security, and imported where applicable to the case of AI. Finally, companies should actively seek to expand the range of stakeholders and domain experts involved in discussions of these challenges.

Report: The Malicious Use of Artificial Intelligence: Forecasting, Prevention, and Mitigation

Oil & gas M&A outlook optimistic despite five-year low deal volume, says new report

BY Fraser Tennant

An optimistic 2018 is the outlook for mergers and acquisitions (M&A) in the oil & gas sector, despite deal volume last year being at a five-year low, according to a new EY report.

In  its ‘Global oil and gas transaction review 2017’, EY reveals that global oil and gas deal volume hit a five-year low in 2017, with total global transaction value falling to $343bn from $390bn in 2016. Furthermore, while 2017 saw a 21 percent increase in megadeals (deals of more than $1bn), a lack of blockbuster deals (deals of more than $50bn), meant overall deal value fell.

In terms of upstream transactions, deal value climbed to $172bn in 2017, characterised by a strong first quarter and outpacing average deal value across the rest of the year by more than 82 percent. North America dominated upstream activity, with deal value up 19 percent to $94bn. Last year also saw Europe’s best performance in more than five years at $27bn.

Furthermore, increasing activity among private equity players and the adoption of more innovative transaction structures are expected to drive upstream M&A in 2018, as joint ventures between independents become increasingly common and healthier balance sheets encourage growth.

“Risk sensitivity and a continued focus on internal performance improvement may have delayed the uptick in deal volume we expected in 2017,” said Andy Brogan, EY global oil & gas transactions leader. “But the need to demonstrate appropriate returns is now pushing companies to reposition their portfolios and seek economies of scale, which in turn we anticipate will underpin more M&A activity in 2018.”

The report also states that midstream deal volume was up 14 percent in 2017, but deal value contracted to $84bn, down 43 percent relative to 2016. Turning to downstream transactions, deal value declined 12 percent to $59bn in 2017, with the number of transactions also dropping 16 percent compared with 2016. That said, deal values in 2017 were more than $14bn higher than the average recorded over the last five years. The US led other regions in both deal volume and value, with 43 transactions totalling $32bn.

“A lack of blockbuster deals in 2017 highlights the industry’s sense of caution in the post-downturn era,” added Mr Brogan. “But buyer and seller expectations have been narrowing and a robust pipeline of actionable M&A opportunities is now available, underpinned by an increase in the oil price, decreasing valuation gaps and improving market sentiment.

“We expect these trends to continue to prevail in 2018, with M&A activity flowing from portfolio optimisation, increased access to capital markets and value chain integration,” concluded Mr Brogan.

Report: Global oil and gas transactions review 2017