Chinese outbound power and utilities M&A poised to take off in 2013
London, 08 MAY 2013
Despite deal value decreasing US$2.3b (8%) from US$27.6b in Q4 2012 to US$25.3b in Q1 2013, the first quarter of 2013 indicates a robust starting point for power and utilities (P&U) mergers and acquisitions (M&A) activity in 2013 according to EY’s quarterly Power transactions and trends report, released today.
- Global power and utilities M&A falls 8% to US$25.3b in Q1 2013
- Deal momentum on the rise; movement on key divestment programs and privatizations
- 2013 could be record year for Chinese outbound M&A deals as appetite grows
The first quarter registered seven individual billion-dollar-plus transactions; with Europe remaining the driver of global M&A, accounting for 51% (US$13b) of deal value, due to continued divestments by large utilities. E.ON SE alone divested US$3.4b of assets in the quarter and this industry trend is set to continue with investments in high-growth markets expected to increase as a result.
Joseph Fontana, EY Global Transactions Power & Utilities Leader, says: “Q1 2013 was defined by capital on the move. With European players divesting transmission and distribution assets and reinvesting in emerging markets, the quarter saw cross-border M&A rise 49% (US$3.2b) from the previous quarter. In the US, utilities continue to move out of competitive non-regulated generation assets, in favor of investing in their regulated portfolios. Asia-Pacific is emerging as the new clean-energy hub, accounting for two-thirds of global renewables deal value in Q1 2013.”
China continues to strengthen global presence in P&U sector
Chinese companies continue to be prominent in the global M&A market with P&U representing a core sector for outbound Chinese investment. Between 2008 and 2012, outbound M&A grew at a CAGR of 26%, peaking at US$12.7b in 2010, up from US$3.3b in 2008. Despite a slowdown in outbound investment last year in China, 2013 is shaping up to be a record year for outbound investment.
Joseph Rodriquez, EY Global Power & Utilities Sector Senior Manager, comments: “All the ingredients are in place for 2013 to challenge the highs of 2010. Strengthening policy support is coinciding with the emergence of a number of attractive opportunities, mostly created through privatization and divestment programs in Europe. The focus will be on regulated transmission and distribution assets, water assets, and renewables.”
Cross-border M&A value and volume almost doubles from Q4 2012
Q1 2013 witnessed a surge in cross-border deal activity, driven primarily by Canada, Germany and Japan. For Canadian investors, the expansion of clean energy portfolios and the acquisition of natural gas assets in the US remained a key focus while Japanese investors focused on European renewable assets. Of the five outbound Japanese transactions in the quarter, four involved solar and wind assets, with Japanese trading house Mitsubishi Corp. participating in three of them. Sumitomo Corporation’s purchase of Sutton & East Surrey Water plc, the UK regulated water utility, for US$259m reflects growing interest of Japanese investors in global regulated water assets.
Looking ahead, Rodriquez concludes: “Portfolio management persists as the strongest theme in the global P&U market and we expect the upward trajectory of M&A to continue. Companies will keep reshaping their asset portfolios, with financial buyers, Chinese state-owned P&U companies, and Japanese trading houses likely to be at the front of the queue for prized regulated assets.
“In the Americas, M&A activity in Brazil will continue to grow, with operational wind assets the key targets. With anemic electricity demand and rising capital expenditure requirements, conditions are ripe for billion-dollar mergers in the US to balance portfolios. Portfolio optimization by hybrid utilities – those with regulated and non-regulated portfolios will also continue to fuel power generation M&A in the US.”
Notes to Editors
Power Transactions and Trends Quarterly is based on EY’s analysis of Mergermarket data from Q1 2011-Q1 2013. We use standard industrial classification codes to categorize deals.
For this publication, we define “power and utilities” as companies in generation, transmission and distribution, renewable and other sub-sectors. Deal activity and valuations may fluctuate slightly based on the date we accessed Mergermarket’s database.
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