The art of the deal
Nobody saw it coming, but very few were ultimately surprised by Engie’s acquisition of UK Power Networks. Utility Week looks at the drivers behind the transaction.
By Rob Horgan, deputy editor
The art of the deal
Nobody saw it coming, but very few were ultimately surprised by Engie’s acquisition of UK Power Networks. Utility Week looks at the drivers behind the transaction.
By Rob Horgan, deputy editor
Engie’s takeover of UK Power Networks (UKPN) came out of the blue. Announced after close of (usual) play last Wednesday evening, the deal caught many people by surprise. Not least because CKI rarely sells its regulated utility assets, and UKPN was widely considered to be the jewel in its crown.
While the timing of the announcement caught many unawares, market analysts and those within the sector itself are largely in agreement that the deal makes perfect sense for all parties and that the timing couldn’t be better.
The final £10.5 billion that both sides shook hands on makes the transaction the UK’s biggest acquisition of the year and represents the largest ever deal for a UK utility. It is also the largest French equity capital market transaction in 2026 and the company's plan to raise €3 billion through accelerated book building will be France's largest raise of this kind in more than two decades.
The deal puts the enterprise value of UKPN at £15.8 billion, based on 1.5x the company’s estimated regulated asset value (RAV) of £10.5 billion by March 2028. Engie said it would finance the acquisition through €4 billion of asset sales and €4 billion new debt alongside its plans to raise an extra €3 billion of new capital.
Enterprise value the deal signifies for UK Power Networks
Amount Engie paid CKI for UK Power Networks
Why did CKI sell?
UKPN’s departing majority owners have long been understood to be open to selling if the right buyer came along. They nearly did so in 2022, when Macquarie and KKR put forward a bid – only for that deal to break down at the final hurdle.
That’s not to say UKPN was on the market, and all official communications around the deal have stressed that Engie’s bid was unsolicited when it was tabled in July last year. So it begs the obvious question: why now?
In the 15 years that CKI has owned UKPN the company has been completely transformed into one of the top electricity networks in the world. It now leads on almost every metric, from reliability faults and customer service and experience to innovation and smart grids. It’s management has also been repeatedly praised for running an incredibly efficient, low-cost business.
“That’s probably the reason for the sale,” says Scott Flavell, Sia Partners’ global lead for utilities regulation. “Over the years, management has delivered every efficiency and performance improvement possible. There is little left to transform, which means annual returns to shareholders above the regulated return will and probably have diminished. Sell to the right buyer at a good price and it makes sense to pocket the cash and move on.”
Jason Liew, subcontract manager at engineering firm McDermott, agrees that the real masterclass wasn’t the price tag, it was the timing of the deal.
“Never fall in love with the infrastructure. Fall in love with where it sits in its capital lifecycle,” Liew states. “Why walk away from a cash-printing, top-performing regulatory monopoly? Because they (CKI) saw the ‘capex Trap’ coming.” He adds: “They harvested the operational yield, sold at a massive RAV premium, and dumped the future execution risk on to the buyer.”
Since CKI's cash yield from UKPN in 2024 was only 3.6%, the disposal won’t sharply reduce its recurring cash inflows. The sale price was considered attractive, equivalent to 1.5x of the RAV and based on calculations by Citi this was also equivalent to 12x 2025’s Ebitda, which would provide "ammunition" for potential future M&As.
Speaking to Utility Week, Flavell agrees that CKI now is “pretty cashed up” following the sale of UKPN just a year after it cashed in on its investment in Hutchinson Ports in a deal reportedly worth $22.8 billion (£17.1 billion). “So maybe they've got an eye on some other acquisitions,” Flavell speculates.
Others have suggested that the deal could signal the beginning of the end for the Hong Kong-based investor in the UK. One policy source suggested that global tensions could be partly behind the deal: “Hong Kong of the early 2000s is viewed very differently to Hong Kong of today,” they added.
That said, another source pointed out that CKI still has a major stake in UK infrastructure, including in Northern Gas Networks and Northumbrian Water – plus it has recently shown a genuine appetite in taking on embattled Thames Water and may well have done so had Thames’ board not opted to limit its options to a rival bid from KKR, which ultimately broke down at the eleventh hour.
Flavell also pooh-poohs any suggestion that CKI is looking to exit the UK: “They’ve gone to a lot of trouble in the past two years to list on the London Stock Exchange. They describe themselves as a UK company with 75% of revenue coming from UK and Australian operations. To me it doesn’t look like a company that's considering exiting the market.”
What’s in it for Engie?
Engie chief executive Catherine MacGregor stressed that diversifying the company’s assets was a key driver behind the deal, as she intends to rebalance the group's infrastructure portfolio toward regulated electricity networks to support global energy transition efforts.
Speaking on a press call the day after the deal had been announced, she talked about the opportunity to capitalise on “substantial network growth […] reinvestment in existing network [and] construction of new lines” to achieve the “mission critical” task of future-proofing the UK grid.
She added that owning UKPN “will give us at Engie the unique opportunity to participate in the UK decarbonisation and electrification journey in line with our purpose as a company”, adding high praise for the “mature” and “sophisticated” UK market that balances needs of investors against the needs of customers.
Specifically, MacGregor said the “virtuous” regulatory landscape in the UK played a significant role in the company’s decision to acquire UKPN. She also pointed to the incentive-based price control package offered by Ofgem, coupled with the UK’s clear direction towards clean power as influential factors in Engie investing in the distribution network operator (DNO), adding that she wished more regulators around the world were like Ofgem.
Despite paying a premium, sources close to the deal say it represents fair market value and is in line with other recent DNO takeover deals, including Iberdrola’s acquisition of Electricity North West last year and National Grid’s deal for Western Power Distribution in 2021. In fact, one source says that “Engie have arguably got a better deal than Iberdrola, depending on how you work the numbers”.
Pietro Nicholls, portfolio manager at investment management firm RM Funds, says Engie’s decision to pay a premium for UKPN reflects a shift in the market. He explains that distribution networks have traditionally been viewed as defensive, low growth, rate-sensitive, bond proxies – “the kind of thing you would buy in a recession”. However, the shift to grid buildout to accommodate growing electrification needs means networks are now seen as the new growth assets in the energy sector. Put simply, “distribution is not boring anymore”. The reason for this, Nicholls explains, is because “the buildout of the grid is needed for everything of the future” from data centres to heat pumps and EV charge points.
“Where we sit right now, energy infrastructure and networks matter more than energy generation. And that means regulated grid assets offer long-duration, inflation-linked cash flows, with asset lives measured in decades and very low obsolescence risk,” Nicholls adds.
The deal also aligns with Engie’s wider strategy to move into electricity networks and power systems. While MacGregor stressed that running regulated assets was in Engie’s DNA, the company does have limited experience operating electricity networks, having been built up on gas.
Sia’s Flavell adds that the move could be the start of a greater shift in Engie’s asset base, with the potential to offload some of its legacy gas assets around the globe.
“Engie is a business founded on gas which has been expanding into power generation, retail and renewables. It has limited experience with the electricity networks,” Flavell says. “The world is electrifying so Engie will be looking at their gas assets and will know that they will naturally decline. And so, they're looking to transition into electricity assets while potentially offloading other parts of the business in the same way that National Grid has done by selling Cadent and then National Gas etc.
“If you look at some of these global utilities, like EDF or Iberdrola, and now Engie, there is a shift from gas into electricity as a future way to decarbonise and grow a business at the same time.”
Flavell adds that this is unlikely to be Engie’s sole venture into electricity networks and expects the company to look to other markets, North America in particular, for future investments. He adds: “If your strategy is to refocus the business away from gas and into electricity networks, what better way to do it than buying the best-in-class network in the world. Engie is getting a top business and management team and the learnings from this business will assist with future electricity network acquisitions. There is a lot that can be learnt from UKPN to drive shareholder value with future network acquisitions.”
“[Owning UKPN] will give us at Engie the unique opportunity to participate in the UK decarbonisation and electrification journey in line with our purpose as a company.”
Catherine MacGregor, chief executive, Engie
“[Owning UKPN] will give us at Engie the unique opportunity to participate in the UK decarbonisation and electrification journey in line with our purpose as a company.”
Catherine MacGregor, chief executive, Engie
How will it work?
MacGregor was at pains to point out that they are investing in the “best in class”, during her media briefing. Slide after slide in her presentation highlighted key figures to hammer home her point. During the first two years of the RIIO-ED2 regulatory period, UKPN achieved a sector-best 11.5% Return on Regulatory Equity (RoRE). UKPN has also consistently ranked in the top two DNOs for most incentives, which translated into net incentive payments of £43.7 million in the first two years of the regulatory period – more than half the entire pot paid out to networks.
As a result, all the signals from both Engie and UKPN are that things (for now at least) will continue as they are. Speaking to Utility Week an hour after the announcement broke, UKPN chief executive Basil Scarsella was keen to make just that point, adding: “We’ll no longer be reporting to Hong Kong, soon we’ll be reporting into Paris. But otherwise, it’s business as usual. Engie bought us for a reason and they want us to keep on doing what we’re doing.”
There is a consensus that the acquisition won’t lead to an immediate hunt for “synergies”. One investor source adds: “I very much doubt Engie has bought UKPN to strip it out. They’ve bought a well-oiled machine and won’t want to be tinkering with that in the same way that say Scottish Power did at ENW where there were move obvious crossovers. Of course, they (Engie) will find it hard to resist some form of integration and way of finding synergies but that’s to be expected with any acquisition.”
Scarsella added that he would be staying on in his role following the takeover and that “Engie has given their clear backing to me and the management team” – a point MacGregor repeated during her media rounds.
Flavell says that keeping Scarsella and UKPN’s wider management team in place will be “critical” to the long-term success of the acquisition. “Engie know that they're buying a good culture and they need to protect that culture. And if they don't protect that culture, well then they deplete the value of that asset.”
As someone who works for a French company, Flavell says there are cultural differences that will need to be ironed out – adding that communication etiquette differs quite dramatically depending on which side of the Channel you are operating on.
“Culturally Engie and UKPN are quite different. But Basil [Scarsella] is a wily operator and if anyone can make it work, he will. For Engie it will be critical to maintain and nurture the key asset of UKPN: its people.”
As one commentator, with intimate knowledge of UKPN, points out that might require a wardrobe rethink for some of Engie’s senior execs, with Scarsella a stickler for formal attire exemplified by a ban on patterned socks for those working on the fifth floor of Newington House.
“We’ll no longer be reporting to Hong Kong, soon we’ll be reporting into Paris. But otherwise, it’s business as usual. Engie bought us for a reason and they want us to keep on doing what we’re doing.”
Basil Scarsella, chief executive, UK Power Networks
“We’ll no longer be reporting to Hong Kong, soon we’ll be reporting into Paris. But otherwise, it’s business as usual. Engie bought us for a reason and they want us to keep on doing what we’re doing.”
Basil Scarsella, chief executive, UK Power Networks
What does it mean for the wider market?
Above all else the deal demonstrates that there is major international interest in UK utilities – in particular its energy networks.
One policy source suggests that this means Ofgem need not offer “aggressively high” rates of return when it comes to make its final rulings for ED3. “The investment is there, they don’t need to make it more attractive,” they add.
A source close to the deal conceded that Ofgem has taken into account acquisitions and adjusted its rate of returns accordingly in the past. However, they played down any suggestion that the regulator would keep returns low at ED3: “Engie will be expecting a decent return and must be confident of seeing one. UKPN usually get the best returns in the sector due to their performance, but you’d expect Engie to want to see even higher returns in the next price control.”
More broadly, financial sources believe that there is likely to be more deals struck for UK energy companies in the months and years ahead. One investor source suggested that a deal for another of the UK’s network operators could even transpire before the year is up.
Nicholls, of RM Funds, agrees that it would not be a surprise to see more deals brokered, however states that there are limited options within UK networks. “Within distribution and transmission there's not really that many you can get your fingers into but it doesn't mean that there can't be a change of hands at one or two. There is definitely activity and a lot of interested parties will be circling.”
Instead, Nicholls expects to see greater consolidation within the UK energy space, particularly within renewable energy generation: “I think there's going to be more and more of these types of deals play out. Consolidation of generation markets will be a big area to watch, and we’ve seen lots of bid companies set up in the last few months, so keep an eye on that, particularly in renewables.”
If a DNO were to change hands, the general feeling is that Northern Powergrid would be the only viable option. If Warren Buffet’s Berkshire Hathaway did decide to sell up, Flavell says it would be an obvious destination for CKI to spend some of its recent influx of cash.
