For businesses in the highly regulated areas of electric, gas, and water, and businesses in the wholesale electric generation space, there are many key considerations to keep in mind when pursuing an M&A transaction.
Electric, gas, and water utilities face intense regulatory scrutiny and significant regulatory risk when pursuing merger and utility sale transactions. Regulatory risk allocation, including the allocation of economic responsibility for commitments made to regulators, drives a number of key commercial negotiation points. For example, buyers are frequently required to assume regulatory approval risk by agreeing to “hell or high water” regulatory covenants and being responsible for large regulatory termination fees.
Transactions involving sales of wholesale generation (including renewables) and energy storage now involve different risk profiles and key negotiation items as financial buyers and sellers have become more prevalent in this space.
The power and utilities space is beginning to see the impacts of the coronavirus (COVID-19) pandemic in areas such as increased customer bad debt, supply chain and permitting delays (including an uptick in “force majeure” notices), heightened review of “material adverse effect” clauses, and pauses in some M&A transaction processes.
As regulated and competitive businesses pursue M&A transactions, they should keep in mind critical factors for success – the significant regulatory considerations for regulated transactions, key diligence and frequently negotiated commercial issues, and the “market” for different transactions.
If you are a power or utilities company exploring a purchase or sale, keep in mind:
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Note: this presentation was part of the M&A Academy webinar series.