While many mergers and acquisitions are defended by chief executives and governments on the basis of the apparent synergies and additional value such deals generate, in its analysis of almost 100 European utilities, Datamonitor claims that there is no statistically relevant relationship between the size of a utility and its profitability.
Similarly, says Datamonitor, while it is often argued that economies of scale emerge in asset management as utilities become larger, again there is no statistically relevant relationship between the quantity and return on fixed assets.
Datamonitor senior energy and utilities analyst Anton Krawchenko believes these findings should impact the way that markets and consumers view proposed blockbuster merger and acquisition deals such as those of E.On-Endesa and GDF-Suez. The research has also finds that integrated power and gas utilities have higher profit margins on average than pure power, or pure gas. Says Krawchenko: “This suggests that one of the only synergistic combinations that actually works to add value to an enterprise is when a pure gas utility merges or acquires a power utility, or vice versa.”
