In every industry, the players try to grow and once they have done what they can inside their natural boundaries they begin to look to grow by mergers. In the electricity distribution business, the path to success is to build through acquisitions. In mid August Andrew Willis wrote a column which asks who will be the next target? As a dividend investor, this is a space which you are easily driven to because utilities are regulated by governments which keeps the players well capitalized and can easily pay dividends. In the past year and a half Canadian companies have spent $170 billion on US companies because the only way they can grow is south of the border and in the broader sense the issues of supplying gas or electricity is the same whether in Canada or the US.

Mr. Willis focused on Vectren which is based in Indiana and has over a million customers and has a $5.5 billion market capitalization. A Bloomberg report stated Vectren had hired financial advisors after receiving an unsolicited offer. It should be noted in 2014 electrical utilities were acquired at a 10 times EBITDA while recent deals are at 11.4 times (or more expensive). For gas utilities rose from 12 times to 13.2 times. Earlier this year Warren Buffett’s Berkshire Hathaway bid for Oncor at $9 billion and was topped by a bid by Sempra Energy for $9.45 billion.

Linking to dividend paying stocks, if you are going to buy in this field, first buy for the dividends and the long term the companies can continue to deliver energy to their customers. If it happens, the company is bid on, you will either take shares in the new company or look for alternatives.

There are more questions than answers, till the next time – to raising questions.