Electrification is a core part of the energy transition, and M&A plays a key role in making sure that Europe’s networks are connected to long-term investors with deep pockets.

Grids are regulated businesses with hefty capex needs, so large private equity (PE) firms, infrastructure investors and strategic players are the owners of choice for governments and regulators.

Investors can expect consistent returns from the assets over several years in exchange for footing the bill to upgrade the grid and increase capacity to help meet Net Zero goals.

As a result of this dynamic, there have already been three blockbuster deals in Europe so far this year, including one in August: Iberdrola’s [BME:IBE] agreement to acquire an 88% stake in Electricity North West (ENW).

This followed the take-private of Atlantica Sustainable Infrastructure [NASDAQ:AY] by Energy Capital Partners (ECP) in May; and ENEL’s [BIT:ENEL] agreement to sell a 90% stake in a new entity called e-distribuzione to A2A [BIT:A2A] in March.

In total, 19 transactions involving targets that work in European electricity transmission and distribution have already generated volumes of EUR 14bn in the year to date (YTD), according to Mergermarket data. This is the third-highest YTD result for the decade, after EUR 50.6bn in YTD18 and EUR 19.5bn in YTD21.

Better shape up

ENW’s new owner, Iberdrola of Spain, is a cheerleader for electrification. It says on its website that the share of electricity in the energy consumption mix is on target for Net Zero targets, as is the deployment of renewable energy for generation. However, the deployment of electric vehicles (EVs) and EV-charging infrastructure are both lagging.

The energy giant has also promised to invest EUR 21.5bn in smart grids in the US, the UK, Brazil and its home market by 2026. Smart grids use digital tech to facilitate the two-way exchange of both energy and information, creating the opportunity for both remote management and automation.

You’re the one that I want

Mergermarket‘s Likely to Exit (LTE) predictive algorithm identifies two imminent opportunities for deals in the sector.* The first is EWE of Germany. Ardian acquired a stake in the utility in 2020 and the company has an LTE score of 51 out of 100.

The second is Sorgenia of Italy, which has an LTE score of 51. Sixth Street and Mytilineos [OTCMKTS:MYTHY] are competing to buy F2i’s minority stake in Sorgenia and EF Solare, as reported.

Another situation worth tracking involves talks between TenneT Holding, a Netherlands-based state-owned high-voltage company, and the German government. TenneT had announced plans to invest up to EUR 160bn in both countries. However, a deal to sell TenneT Germany has been put on ice.

EnBW Energie Baden-Württemberg [ETR:EBK] (EnBW) and RWE [ETR:RWE] are keeping an eye on the TenneT deal before considering what to do with their own high-voltage grids.

The need for capex, upgrades and smart grids is likely to drive deal activity for many years to come. Time to power up.

*Mergermarket’s LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.