Power deals at record level in 2005 says PWC

9 March 2009 – The M&A market in the global electricity and gas industry is entering a new blockbuster deal era following a record year in 2005, according to a new report from PricewaterhouseCoopers (PWC).

In its “Power Deals” report on M&A activity in the industry PWC puts the level of activity in 2005 largely down to the rise of ‘super-regional’ utilities and consolidation in Europe.

During 2005 new records were set for the number of deals, the total value of deals, the value of a single deal and the number of mega-deals valued at over $10bn. With 527 deals valued at a total of $196bn and five deals each exceeding $10bn, 2005 far out-ran 2004’s high levels of activity.

“The electricity and gas M&A activity surpassed the exceptional momentum that had already built up and is continuing to gain speed in 2006,” said Manfred Wiegand, Global Utilities Leader at PWC. “We are seeing a new era of ‘blockbuster deals.’ Companies are consolidating and extending their regional footprints to attain non-organic growth in a tight sector facing high fuel prices and security of supply concerns. We are also seeing greater involvement of financial players in the market with the rise of infrastructure funds creating a new asset class.”

European activity is fuelling the huge surge in total deal activity as utility companies move fast to consolidate in the EU in advance of the anticipated customer choice resulting from liberalized rules in 2007. But, while the biggest surge came in Europe, total deal numbers and value also rose virtually across the board. There is a trend globally toward domestic consolidation, with domestic deals accounting for 71 per cent of all deals in 2005. Global activity, however, is still notable with a growing breed of infrastructure funds building global portfolios of primarily network assets.

“The run up to the 2007 full-market opening in Europe will continue to feed consolidation momentum in the EU,” said Wiegand. “Around the globe, increased competition is driving companies to turn to M&A activities to deliver growth horizontally and vertically. High wholesale power, gas and carbon prices also are creating new platforms for deal activity, pushing up generation asset values and bolstering the rationale for deal prices. As we look ahead, we can expect to see greater integration of upstream and downstream entities and more moves by the mega-players. The attitude of the competition authorities will be critical to future deals.”

The report says that power deals in Europe accounted for 58 per cent of all targets and 44 per cent of all bidders in the total worldwide power deals market in 2005. The value of all deals for European electricity assets trebled (up 202 per cent). The leap was even more dramatic for purely domestic deals where the value of European electricity assets targeted rose fourfold.

Power deal activity in North America continued at very high levels in 2005, accounting for one-third of all power deals worldwide with the value of total North American M&A targets rising by 5.8 per cent to $62bn. Most of the activity was in electricity.

The value of total deals for Asia Pacific power assets continued to grow in 2005 even after an exceptional rise in 2004. Total deal value rose to $17.2bn in 2005, up from $15.1bn in 2004 and $6.2bn in 2003.