Deal Talk: Constellation Energy acquires Calpine

Good morning. Welcome to The Deal Talk where each week we break down a recent M&A deal.

Today we’re going to be walking through Constellation Energy’s acquisition of Calpine that was announced on January 10th.

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DEEP DIVE
Constellation Energy’s $26.6B Calpine Acquisition Bets Big on AI-Driven Power Demand

Constellation Energy is acquiring Calpine in a $26.6B cash-and-stock deal, assuming $12.7B in debt. The transaction cements Constellation’s dominance as the largest competitive power producer in the U.S., expanding its portfolio with natural gas, nuclear, and geothermal assets.

Calpine operates 79 energy facilities with 27,000 MW of generation capacity, while Constellation is the nation’s largest producer of clean, emissions-free energy, supplying three-fourths of Fortune 100 companies. The deal strengthens Constellation’s position in Texas, California, and the Mid-Atlantic, key markets experiencing rising power demand.

Strategic Rationale

Initially positioned as a pure-play renewables and nuclear company, Constellation pivoted to natural gas due to regulatory uncertainty and surging electricity demand.

The rollback of Green New Deal-style policies under Trump reduced incentives for wind and puts solar in danger, while AI data centers, EVs, and industrial reshoring increased pressure on grid reliability. Calpine’s natural gas fleet provides a stable, dispatchable power source, ensuring round-the-clock supply as the U.S. decarbonizes.

“The dramatic increase in the digital economy has extended the asset lives of Calpine’s gas generation fleet well into the 2040s,” according to S&P Global Ratings. Data centers could account for 44% of U.S. electricity load growth from 2023 to 2028, and U.S. electricity demand is projected to grow 9% by 2028 and 18% by 2033.

In 2024, Constellation signed a 20-year agreement with Microsoft to supply power to its AI data centers. This includes restarting Three Mile Island Unit 1, a nuclear reactor shut down in 2019, requiring a $1.6B investment and an estimated 2028 restart.

Financial Impact & Market Multiples

The deal is highly accretive, with projected >20% EPS growth in 2026 and $2B in annual free cash flow, funding further investments in nuclear, batteries, and renewables.

Key Financial Metrics:

• EV/EBITDA Multiple: 7.9x 2026 EBITDA

• Constellation’s P/E Ratio: ~32x, comparable to Vistra, another AI-exposed power producer

• Non-AI-Exposed Power Producers: Trade at 10x-15x P/E, reflecting lower growth expectations

S&P Global notes the combined company will hedge power sales through capacity auctions, wholesale load contracts, nuclear production tax credits, and bilateral trading, securing stable revenues.

Deal Structure & Financial Advisors

Constellation is funding the acquisition through $4.5B in cash and 50M newly issued shares, preserving liquidity while giving Calpine’s private equity owners a stake in the combined company.

Lazard and J.P. Morgan advised Constellation, while Evercore, Morgan Stanley, Goldman Sachs, and Barclays advised Calpine’s shareholders, led by Energy Capital Partners.

Opinion & Outlook

What Could Go Right?

• AI-driven power demand could accelerate revenue growth

• Market positioning strengthens Constellation’s grip on key U.S. regions

• Energy diversification reduces risk from regulatory shifts

What Could Go Wrong?

• Market power concerns: Constellation is proposing "limited" PJM asset sales to address potential FERC antitrust scrutiny, but opposition from regulated utilities and policymakers could delay approval

• Geopolitical risks: LNG price volatility due to Russia-Ukraine war and Middle East tensions may impact profitability

• Public perception of nuclear: Success depends on regulatory approvals and community acceptance, particularly for Three Mile Island’s restart

Conclusion

This acquisition signals the convergence of energy and technology as AI-driven power demand reshapes the utility sector. Nuclear, geothermal, and natural gas are emerging as essential backup sources to intermittent renewables.

Expect further energy consolidation, as firms secure reliable, dispatchable generation to power data centers and electrification.

THAT’S A WRAP
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The Deal Talk Team