Acquisition pricing more challenging than ever for Canadian power and utilities: EY report
(Toronto, 6 February 2013) Canadian power and utilities companies are showing an appetite to grow and diversify through acquisitions in 2013, according to a new EY report. However, with changing regulatory structures in different jurisdictions, companies are facing increased uncertainty when it comes to pricing the deals.
“Regulatory models are changing in many power and utilities jurisdictions,” says Gerard McInnis, partner in EY’s Power & Utilities practice. “And the peculiarities of the rate structures and market characteristics within each of these jurisdictions — in Canada, the US and internationally — are only exasperating the uncertainty that goes along with those changes. In this environment, power and utilities companies looking to acquire in 2013 need to factor in sufficient time to carefully consider deal values and likely returns.”
A recent EY report, Power transactions and trends: global power and utilities mergers and acquisitions 2012 review, 2013 outlook, predicts that competition in Canada will increase in 2013, providing impetus for greenfield and brownfield development. However, high-quality rate base or contracted assets will remain in demand, with an emphasis on greater geographic diversification inside North America and internationally.
“We’re seeing Canadian power and utilities companies expand geographically and build out their renewable assets through acquisitions,” adds McInnis. “As they expand their footprint beyond familiar territory, they need to do due diligence to understand the complexities of new regions and new markets.”
Globally, M&A values within the power and utility sector during 2012 declined by 16.8% compared to 2011. The average deal value for 2012 remained in line with 2011 at US$552M, with eight transactions worth over US$1B taking place in Q2 2012 alone. However, the second half of 2012 depressed the average 2012 deal value, with a higher concentration of deals under US$100M reflecting the greater emphasis on smaller deals and an increase in renewable transactions.
“Globally, the weak macro environment prompted buyers to focus on lower-risk transactions and internal cost-reduction programs in 2012,” says McInnis. “But with the right deal-making conditions in 2013, it’s an exciting time for Canadian power and utilities as they continue to branch out and diversify.”
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