Power transactions and trends
Global power and utilities mergers and acquisitions review, Q2 2013
Q2 2013 M&A up 30% in three months
Q2 2013 was an exciting quarter for the global power and utilities (P&U) sector, with deal value rising 30% to US$33b, up from US$25.3b in Q1 2013. While volume remained flat, there were a handful of multi-billion-dollar transactions.
The US$10b acquisition of NV Energy by MidAmerican Energy Holdings, and TECO Energy’s acquisition of New Mexico Gas Company for US$950m were marquee deals within the US this quarter.
Global P&U deal value and volume, Q2 2011–Q2 2013
Source: EY analysis based on mergermarket data
To drive broader economic growth, the US Federal Reserve has kept interest rates low, sending investors scrambling for higher yields. However, with the economy continuing to improve in 2013, the Fed could begin reducing its unprecedented bond buying program.
The valuation of P&U stocks rose in recent years as investors pursued higher yields amid a low interest rate environment. However, the recent pull-back in utilities, which were trading at record valuation levels in April, could signal trouble. Shrinking valuations may lower at least one hurdle to large utility mergers.
Europe continued to witness divestments by large utilities that are still restructuring asset portfolios. Regulatory uncertainty around renewables and environmental mandates around coal have made gas an important constituent of the region’s generation mix.
Utilities including EDF, Snam and Centrica undertook M&A to acquire strategic gas assets during the quarter. Centrica’s acquisition of shale gas interests in the UK and Canada was a notable move.
Upcoming privatizations in Greece, Finland, New Zealand and Africa could result in billion-dollar-plus transactions in the year. Combined with expected robust activity in the US, this could make for a busy second half of 2013.
Despite a decline in financial buyer activity this quarter, we see new financial investment hubs emerging in areas such as Japan and the Middle East, which are looking to expand foreign investments.