The report from accountancy firm KPMG, Powering Ahead: mergers and acquisitions in the global power and utilities industry, claimed that cross-border consolidation was likely to continue, with Australia named the best prospect for growth and Australian utilities investing in other countries.

KPMG’s co-chair of energy and natural resources, Antony Cohen, predicted last year’s “intense activity” would continue into this year and beyond.

“Utility consolidation is a growing global trend,” Cohen said.

“Some of the mid-to-large utility players look set to pursue mega-deals to shore up their position in the highly competitive market over the coming year,” he said.

The report said much activity had already occurred in the Australian sector, but there was still more to come.

Superannuation funds were flowing into overseas investments, especially utilities in developed countries such the United States and United Kingdom.

In recent years, a larger number of Australian and Asian investors had replaced American investors in that country’s utility sector, KPMG said.

Three fifths of the utilities surveyed said their businesses were actively seeking acquisitions, while nearly half had acquired another utility in the past three years.

More than 50% of respondents said the main goal of M&A was increasing market share, with other drivers cited being acquisition of new products and services, entering new geographic areas and improving economies of scale.

Incremental growth remains a cornerstone of strategy, with 65% of respondents expecting organic growth to be more important to their businesses than growth by acquisition.

Rapid economic growth in populous countries, notably China and India, is expected to create organic growth opportunities.

When asked what drove increased M&A activity, half the respondents cited competition from larger consolidated players as a major impetus while 48% cited greater cost efficiencies.

Looking ahead, concerns about energy security and climate change – in addition to incentives from governments to bolster investment in renewable energy – are expected to spur investment in wind power and other renewable assets.

“There is investor uncertainty around the Australian carbon trading scheme and its impact on M&A values,” Cohen said.

“Greenhouse emissions and water are critical issues affecting pricing and timing of investment.”

Cohen said investors could shy away from coal-fired power station investments as a result.

But he also warned that “intense interest” in the renewables sector had prompted speculation that bidders were paying too much.

“Utilities need to be quick out of the blocks to gain a foothold in the market before their competitors,” he said.

“Reaching an agreed deal without fierce competition is very rare.”