Wall Street Shades On: Why KKR May Want To Snap Up TXNM Energy Now

TXNM Energy (NYSE:TXNM), formerly PNM Resources, is once again in the M&A spotlight after reports emerged that private equity giant KKR & Co. has been in discussions to acquire the company. This potential transaction, first reported by Bloomberg, follows TXNM’s strategic pivot after the collapse of its merger with Avangrid — the U.S. subsidiary of Iberdrola — earlier this year due to regulatory roadblocks. KKR’s interest marks a significant validation of TXNM's strategic direction and recent operational achievements. Although no deal is finalized and TXNM may choose to continue as a standalone entity, the timing of the news is intriguing. With clean energy acceleration in New Mexico and exponential data center-driven demand growth in Texas, TXNM is now positioned as a vital regional utility — precisely the kind of asset that attracts infrastructure-hungry private equity firms like KKR.

Massive Capital Investment Plan With Predictable Returns

TXNM’s recently revised five-year capital plan now totals $7.8 billion, up $1.6 billion from the previous forecast, with a sizable portion directed toward transmission and distribution projects in Texas and clean energy development in New Mexico. For private equity buyers like KKR, this kind of large-scale, long-term capital deployment with predictable regulatory returns is attractive. TNMP, the Texas utility subsidiary, remains the fastest-growing part of the business, with a 17% rate base growth forecast and over $500 million in rate base additions planned through 2028. Importantly, most of these investments are recoverable via semiannual mechanisms like TCOS (Transmission Cost of Service) and DCRF (Distribution Cost Recovery Factor), minimizing lag risk. Additionally, TXNM has incorporated $750 million in capital investment in the Permian Basin reliability project, a vital infrastructure upgrade with no public opposition and strong regulatory alignment. These investments are phased and structured for recovery as projects go live, providing stable earnings growth and limited downside — a favorable setup for a buyer seeking steady, utility-like cash flows over time. Moreover, the potential upside of another $900 million in 345 kV investments is not even included in the current plan, which could provide KKR with optionality. Add to that TXNM’s already approved grid modernization efforts and its growing clean energy portfolio, and you have a capital plan that offers both defensive cash flows and ESG-aligned optional growth.

Strong Regulatory Momentum & Unopposed Settlements

Utilities with smooth regulatory relationships are often top priorities for private equity suitors, and TXNM has shown exceptional momentum in this regard. In both its key jurisdictions — New Mexico and Texas — TXNM recently achieved unopposed settlements in critical rate proceedings. At PNM, the New Mexico arm, TXNM reached a general rate request settlement that includes phased-in rates beginning July 2025, easing the impact on customers and smoothing revenue recognition. This settlement also incorporates a higher allowed ROE of 9.45% and an equity layer of 51%, bolstering long-term profitability. Furthermore, TXNM’s Grid Modernization Plan and 2026 resource application were both approved earlier this year, underscoring its alignment with regulators’ clean energy goals. In Texas, TNMP also secured a unanimous settlement on its first System Resiliency Plan, encompassing $566 million in capital investments aimed at wildfire prevention and climate resilience — an increasingly critical concern for stakeholders. The regulatory mechanisms in Texas — such as TCOS and DCRF — have allowed TNMP to effectively recover over $350 million in new rate base investments semiannually. All of these factors point to a company with minimal regulatory friction, something private equity firms highly value to avoid prolonged legal battles or costly delays. Given that the previous Avangrid transaction was derailed by regulatory disapproval, the recent wave of approvals and stakeholder alignment enhances the likelihood that any new deal, especially one involving a domestic buyer like KKR, would be more favorably received.

Attractive & Visible EPS Growth Trajectory

One of the key metrics any acquirer — particularly a financial buyer like KKR — considers is a target’s earnings growth visibility. TXNM has just raised its EPS growth target to 7%-9% through 2029, up from 6%-7% previously, based on improved capital expenditure planning and higher-than-expected growth in its Texas operations. Notably, TXNM ended 2024 with EPS of $2.74, the high end of its guidance, and has guided for $2.74–$2.84 in 2025, despite phasing in new rates mid-year. This suggests strong confidence in ongoing execution. More impressively, its long-term potential earnings per share in 2029 is now projected at $3.86 at the midpoint, supported by disciplined financing strategies, including $1.3 billion in equity or equity-linked issuances to preserve balance sheet strength. TNMP's continued demand from data centers, residential expansion, and volumetric customers, combined with interconnection requests that grew 10% year-over-year, provide a long-term load growth story that’s rare in the utility sector. From a private equity standpoint, this kind of consistent earnings trajectory provides the foundation for debt structuring, dividend recapitalizations, or IPO re-listing in the future — all typical levers for creating exit value. Moreover, the guidance explicitly splits financing impacts from growth assumptions, offering uncommon clarity on how capital structure changes will impact EPS. That level of transparency is invaluable to financial buyers assessing leverage, return potential, and downside protection.

Positioned As A Regional ESG Champion Amid Grid & Energy Transition

TXNM offers a rare blend of traditional utility fundamentals and emerging ESG tailwinds, aligning with private equity’s growing preference for sustainability-linked investments. In New Mexico, PNM added 1,500 MW of solar and storage capacity in 2024 alone, nearly doubling its carbon-free portfolio. By 2026, TXNM’s energy mix is expected to be 75% carbon free, a benchmark that resonates with both ESG-minded investors and regulatory stakeholders. TXNM has also received approval for its Grid Modernization Plan, enabling more customer integration of renewables and smarter energy consumption across its network. Furthermore, PNM is actively pursuing integration into the California day-ahead market, enhancing operational efficiency and customer cost savings while facilitating greater regional cooperation on renewable energy exchange. On the Texas front, TNMP’s investments in system resiliency, wildfire prevention, and weather-proofing are ESG-aligned capital deployments, which also serve a financial purpose: improving uptime, reducing emergency repair costs, and enhancing rate base. The company has also joined legislative initiatives in New Mexico focused on economic development and utility site readiness, allowing for more proactive infrastructure deployment. All these initiatives add up to a compelling ESG story that’s more than just compliance — it’s embedded in the company's long-term growth plan. This enhances TXNM’s strategic value for acquirers who need to report ESG progress to LPs or meet internal sustainability metrics. For a private equity fund like KKR, which has its own set of ESG-linked investment mandates, TXNM fits squarely into the sweet spot.

Conclusion: A Deal Worth Watching — But Not Without Risk

Source: Yahoo Finance

TXNM Energy’s stock trajectory has been upwards but surprisingly, its valuation multiples look reasonable as it is trading at an LTM EV/ EBITDA of 12.39x and an LTM diluted P/E of 20.22x, both of which look reasonable when compared to its peer group. Its strong earnings growth, expanding capital base, favorable regulatory outcomes, and ESG-centric transformation have likely put it on KKR’s radar — and perhaps other private equity firms as well. However, while its fundamentals are robust and strategic optionality abundant, the stock still faces uncertainties. These include the execution risk tied to ambitious capital projects, future regulatory rulings, and potential dilution from equity-linked financings. Moreover, no deal has been finalized, and management has not ruled out continuing as an independent company. Overall, given the above-mentioned positives, we see a decent chance of KKR going through with the acquisition but we also see TXNM Energy as a solid investment even as a standalone company.