July 12, 2019 • EPE Related News
El Paso deal underscores 2019's otherwise slow utility consolidation
Story link: https://platform.mi.spglobal.com/InteractiveX/article.aspx?CDID=A-52164987-11560&KPLT=4
El Paso deal underscores 2019's otherwise slow utility consolidation
By Ellen Meyers
El Paso Electric Co.'s June 3 announcement that it would be acquired by a J.P. Morgan Investment Management Inc.-advised investment fund underscored a key trend in the utility sector for 2019 so far: There is not a lot of corporate M&A happening.
El Paso's buyout marked the third utility deal so far in 2019, following Canada-headquartered ENMAX Corp.'s purchase of Emera Maine and Irving, Texas-headquartered Vistra Energy Corp.'s acquisition of Canada's Crius Energy Trust.
This latest transaction, in which J.P. Morgan-advised Infrastructure Investments Fund, or IIF, plans to purchase El Paso for $4.3 billion, including its net debt, is not a utility acquisition driven by traditional considerations like expanding a service territory, capitalizing on corporate synergies and strategically moving into high-growth markets. Instead, IIF, an $11.3 billion private investment vehicle, appears to be looking for a safe place to invest some of its 40 million retirement funds.
A low-interest-rate environment has contributed to the lack of pure utility M&A play in 2019, according to some analysts and sector observers. Companies have seen clarity on rates shift in the past six to nine months, which affects their valuations, said Brian Boufarah, an accounting and deal management partner at Deloitte Risk and Financial Advisory. Without that certainty, utilities are taking a wait-and-see approach.
"Those things do matter to potential buyers and sellers of corporate assets," Boufarah said in an interview. "It doesn't surprise me that impacted the pace and pattern around getting some deals transacted."
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