Positioning to win in the contest for scale.
Jack Azagury (jack.azagury@accenture.com) is Accenture’s North American Management Consulting lead for the resources industries, and Walt Shill (walt.shill@accenture.com) is global senior director at the company. Ted Walker (ted.h.walker@accenture.com) is a senior manager in the Accenture Utilities Strategy group. The authors acknowledge contributions from Jan Vrins, Accenture Utilities Management Consulting group, and Jason Allen, Accenture Research.
In the last decade, the utilities industry has behaved more like the tortoise than the hare in the race to consolidate. While companies in sectors such as telecommunications, banking and oil have actively joined forces and reshaped their industries, utilities have followed a conservative route toward mergers and acquisitions (M&A). Recent trends indicate that utilities are no longer idling on the starting line—in the past 18 months alone we have seen a greater growth in the concentration of the top players in the industry than in the preceding 10 years.
Now, the forces for continued fragmentation are being overshadowed. Even the stringent regulatory environment can’t compete with decreased avenues for earnings growth, increasing demands for capital expenditures, declining returns on equity, and other factors that are accelerating the pressure to consolidate. In the last 10 years, the number of investor-owned electric utility holding companies in the United States has declined from 69 to 51, a trend we expect to accelerate, leading to less than 40 U.S. investor-owned electric utility holding companies by 2020. Some companies are better positioned than others to drive consolidation—and some need to reevaluate their strategy based on their positioning if their ambitions are to grow through M&A. So how can utilities industry players better prepare themselves for the race to consolidate?