NiSource Inc.'s sale of a minority interest in its prized Indiana utility subsidiary for a "very healthy" premium indicates the market for such transactions is not cooling down anytime soon. Analysts, however, said outside of a couple businesses already shopping assets, it is not clear when another utility stake could be carved out.

NiSource said June 20 that it agreed to divest a 19.9% equity interest in Northern Indiana Public Service Co. LLC (NIPSCO) to an affiliate of Blackstone Infrastructure Partners for $2.15 billion. The deal includes an additional $250 million equity commitment by Blackstone Inc.'s dedicated infrastructure group to fund ongoing capital requirements.

"Broadly speaking, it is a sign that there is a lot of interest in utilities that are investing in infrastructure and participating in the clean energy transition," Morningstar analyst Travis Miller said in a June 21 interview. "[NiSource management's] two options to raise equity were to issue it at market prices or to find a deal similar to what they signed ... and they got a much better valuation by going with the Blackstone deal."

The transaction implies an equity value of $10.8 billion and an enterprise value of $14.3 billion for 100% of NIPSCO. As of June 22, NiSource's total market capitalization was about $11.24 billion.

"NiSource got a phenomenal price," Miller said, noting that the earnings multiple is a "very healthy" premium and calling the deal "one of the richest ever for a regulated utility."

The Merrillville, Ind.-headquartered multi-utility expects the sale of a minority ownership interest in NIPSCO to minimize future external capital market needs and eliminate all equity needs through at least 2025.

"The 32.5x [price-to-earnings] multiple offers a more compelling valuation than traditional capital markets, and it's highly accretive relative to where NiSource trades today," NiSource Executive Vice President and CFO Shawn Anderson said on a June 20 conference call with analysts and investors. "In fact, the implied value for NIPSCO nearly equates to the total NiSource market capitalization, despite only comprising approximately 50% of the economic value of the full NiSource operating platform."

Along with NIPSCO, NiSource operates gas distribution utilities in five states, all under the Columbia Gas name.

Wells Fargo Securities analyst Sarah Akers said the deal is another "meaningful step" in NiSource's re-rating story.

"Beyond increasing our confidence in the growth and balance sheet outlook, we view the announcement as an important milestone in the company's path toward rebuilding the track record," Akers wrote in a June 20 research report. "The timing of the announcement was in line with our mid-year expectation and the price was healthy despite a challenging macro backdrop."

Miller said it is likely that more utilities will start to look at similar opportunities given the premiums attached to such transactions.

"It's hard for a management team to pass up the type of valuations that we've seen [in] the last few deals relative to what the stock prices are," Miller said. "Frankly, it should be a concern if managers aren't exploring some of those opportunities given the premiums."

CreditSights analyst Andrew DeVries, however, said there may not be a wave of regulated utility stake sales emerging anytime soon.

PG&E Corp. subsidiary Pacific Gas and Electric Co. "claims they have strong interest in a Pacific Generation partial sale and [Dominion Energy Inc.] is shopping a similar minority interest in a new offshore wind rate-based subsidiary that we see zero buyers for," DeVries said in a June 23 email. "Other than those two already on the market, we don't see a new wave of utility [operating companies] being partially sold."

M&A Replay: Multibillion-dollar energy, utility deals spring in mid-June

The NiSource deal marks one of the largest US utility transactions since early 2021, according to an S&P Global Market Intelligence analysis.

Duke Energy Corp. in January 2021 decided to sell a 19.9% interest in utility subsidiary Duke Energy Indiana LLC to GIC Private Ltd. affiliate EPSOM Investment Pte. Ltd. in a $2.05 billion all-cash deal. The transaction with the Singaporean sovereign wealth fund closed in two phases and allowed Duke Energy to avoid raising $1 billion in common equity while helping fund its capital plan.

The NiSource deal announcement also comes just a few months after FirstEnergy Corp. said it would sell an additional 30% ownership interest in its FirstEnergy Transmission LLC subsidiary to a Brookfield Asset Management Ltd. infrastructure fund for $3.5 billion in cash. Brookfield Super-Core Infrastructure Partners LP in May 2022 acquired a 19.9% interest in FirstEnergy Transmission for $2.38 billion.

"Just about every utility in the US is going to be raising substantial amounts of capital," Miller said. "I think this is just another sign that there is a lot of interest out there in the private market to participate in utilities' growth potential."

Dominion, in addition to the potential wind unit share sale, is currently undergoing a "top-to-bottom" business review with goals to boost stock performance and shareholder value. In a May 5 Form 10-Q filing, Dominion wrote it "may consider divestiture of all or a portion of certain operations" as part of the business review.

American Electric Power Co. Inc. (AEP) also continues to test the market and pursue the sale and strategic review of noncore assets despite the termination of its $2.65 billion deal to offload its Kentucky Power Co. and AEP Kentucky Transmission Co Inc. businesses.

DeVries previously pondered that FirstEnergy's sale of ownership interests in its "crown jewel" transmission business could be a read-through for AEP to consider monetizing its prized AEP Transmission Holding Co. business.

AEP management, however, has repeatedly told analysts and investors that the company has no plans to sell a slice of its transmission business.

"What we have made a concerted effort to do is continue to stress-test and look at every piece of our business to make sure that [the business] really fits," AEP President and CEO Julie Sloat previously told S&P Global Commodity Insights. "So, the whole picture hangs together, but we don't feel the need to sell a minority interest when we've got these other things going on."

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.