Power transactions and trends
Global power and utilities mergers and acquisitions review Q3 2012
Global P&U deal activity cools following renewed valuation concerns and delayed European divestments
The third quarter of 2012 saw global power and utility deal value and volume decline by 60% and 12% respectively, compared to the previous quarter. The drop in deal activity can be largely attributed to:
- Renewed global economic uncertainty
- Delays in privatization and divestment programs in Europe
- A resurgence of the valuation gap between buyers and sellers, which led to failed deal discussions
Unlike last quarter, which witnessed eight billion-dollar-plus deals (including four over US$3b), Q3 2012 saw only four deals over a billion dollars. The US$4.2b merger of NRG and GenOn was the largest deal announced this quarter, demonstrating the challenging power price environment that confronts competitive power producers in the US.
The Chinese quest for European assets continued in Q3. The consortium of Power Assets Holdings Limited, Cheung Kong (Holdings) Limited and Li Ka Shing Foundation Limited acquired Wales & West Utilities, a UK-based gas distribution company, for US$3b.
The last three months of 2012 are expected to mirror the trends in the current quarter. Although divestments and unbundling requirements in Europe will keep Asian investors active, the fear of not getting the right valuations might drive sellers to hold on to their assets, restricting M&A.
Deal activity in emerging economies of Latin America is expected to rise, driven by significant infrastructure requirements, particularly as the renewable portfolio build-out continues.
We anticipate the current patchy deal environment will continue into Q4 and possibly into 2013. M&A value for the year has only reached US$92.9b: it's likely that 2012 M&A will fall short of the US$144.7b achieved in 2011. Despite this, a number of fundamentals are in place for a robust deal environment in 2013. With liquidity still in a market and companies being forced to grow and deleverage from lower growth domestic markets, we see opportunity on the horizon.
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Source: EY analysis based on Mergermarket data