During the past five years, the smart grid sector has seen a marked upsurge in merger and acquisition (M&A) activity, with an increase in both the number and value of deals closed. As utilities worldwide retrofit their systems to provide better service and pricing, the supply side is working overtime to meet worldwide demand for state-of-the-art platforms and to provide ever-more-sophisticated technology.

Indeed, according to a recently released research report, "The Smart Grid Business 2011 to 2016,” the value of pure smart grid M&A deals grew from a total of $134 million in 2007 to $10.6 billion in 2011. During 2010, approximately 68 deals were sealed, representing an average value of $155 million each. In the following year, 2011, 49 deals were closed, at an average value of $225 million.

As much as 90 percent of the purchase price was financed by cash in 2009, falling to the 70 percent range during the next two years. The researchers expect this figure to surge again -- if not by quite as much -- to around 75 percent by 2015.

However, the report is not totally optimistic “While the factors driving the massive growth in this fledgling business require restructuring and consolidation, confidence in the future has taken a hit,” the analysts at London-based Memoori Research said, adding, “The current negative economic outlook is likely to counteract some otherwise strong drivers for deal-making.”

As a result, Memoori forecasts that the value of deals will fall over the next three years and will not return to 2011 levels until 2015. Value of smart grid M&A deals should reach $12 billion by 2016. Nevertheless the researchers expect that the volume of deals will increase in the short term, while the average value will dive -- to take in much smaller companies with annual revenues of around $50 million to $75 million.

The analysts commented, “The [predicted] decline in activity is hardly surprising, given that the sovereign debt crisis in Europe started to hit financial markets in August [2011]; and liquidity and confidence has since seriously deteriorated. M&A activity across virtually all manufacturing industries has yet to recover from its fall in 2008.”

In addition to mergers and acquisitions, one of the strong features of the smart grid supply business will be the continuing growth of alliances and partnerships. In 2010, Memoori identified 115 such arrangements, as opposed to 97 in 2011. All of the major smart grid suppliers have made a number of alliances with different companies -- the main objective being interoperability of their products and solutions.