Looking ahead to the rest of 2019, Managing Director Drew Spitzer sees significant buyer interest in utility services, industrial services and infrastructure services, as well as in energy management and energy technology. And with uncertainty as the new normal, he encourages management teams, strategic buyers and private equity investors active in energy, power and infrastructure to stay focused on long-term strategy. Read on for his full comments.
Within your industry, which sub-sectors do you anticipate experiencing the highest levels of interest? Why?
The areas where we are seeing a significant amount of buyer interest and opportunities are utility services, industrial services and infrastructure services. With the backdrop of a growing economy and aging infrastructure, both maintenance and capital spending across those sectors remain robust and are driving significant interest.
We’ve also seen a lot of interest within the broader energy management and energy technology landscape: demand response, load management, program management, energy efficiency programs, energy service companies (ESCOs) and other energy tech. With a growing economy, overall demand for power has increased significantly in recent years. The more you increase efficiency, the less generation you need, making this a focus across the utility landscape.
Which industry-specific trends or issues are you watching most closely?
We’re watching renewables and distributed generation, which will create both opportunities and risks. We’re also keeping an eye on the broader economy—if it slows down, obviously less energy will be used and there will be less capital to spend. But generally speaking, things look strong throughout the industry.
Which geopolitical and/or macroeconomic issues are most relevant to your industry? Why?
I think we're in a more potentially volatile geopolitical environment than we've had in a long time, and uncertainty seems to be the new normal. So we’re keeping a close eye on the respective situations in Russia, China, and the broader Middle East.
Given the length of the current bull market, what should private companies, private equity groups and strategic buyers be thinking about?
Across the board, companies should be focused on making decisions that are prudent for the long-term direction of the business. Might they moderate their leverage or spending to manage risk? Potentially, but these issues can arise at any time. Companies need to be in a position where they can weather a downturn and come out stronger on the other side. But that doesn't necessarily mean changing the strategic direction of the business in the near term.
I think that’s generally true for private companies, private equity groups and strategic buyers. While they might be challenged for a six- to 24-month window during a downturn, those that are well-positioned going in are going to be in a better position coming out. Do what's right for the business for the long term, and be ready to meet any threat if it arises.
Which qualities make acquisition targets most appealing in a more challenging operating and investing environment?
In the current environment, buyers are paying significant premiums for quality businesses that have less risk. Risk is defined in a lot of different ways, but those are the kind of businesses that everyone's trying to buy. For businesses that might have more potential downside or capital requirements or the like, buyers are prudently doing their diligence and making longer-term value determinations.