Capital on the move

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Get ready for a robust 2013 in utilities mergers and acquisitions (M&A). Our latest Power transactions and trends report reveals how deals are shaping the global utilities sector in 2013. Joseph Rodriquez reports.

After a transformative 2012 for power and utility (P&U) companies around the world, the first quarter of this year delivered a more robust platform for M&A in the sector.

Deal value has decreased, reaching US$25.3b in Q1 2013, down from US$27.6b in Q4 2012. However, encouraging signs are in place, including progress on large European privatizations and divestment initiatives.

Key findings, Q1 2013

Q1 2013 global P&U M&A registers US$25.3b, down US$2.3b (8%) on the prior quarter.
Divestments in Europe remain the center of activity, while power generation deals drive an increase in US activity.
Capital is on the move with cross-border M&A rising 49% ($3.2b) quarter-on-quarter, driven by a need to secure energy supplies, expand market share and add stable cash flows.
Renewable M&A contributes 50% to global deal volume (23% to value), with Asia-Pacific the new clean energy hub.

Europe driving global activity

Europe remained the focal point for global M&A, contributing over 51% (US$13b) to global deal value in Q1. Activity was mostly driven by continued divestments by large utilities including GDF Suez, E.ON, RWE, Dong Energy, Iberdrola and Veolia.

Many of these companies turned their interest to higher-growth markets. In Brazil, E.ON raised its stake in MPX Energia. Enerjisa, a joint venture between Turkish Sabanci and E.ON, placed the highest bids in privatization tenders for Turkey’s Toroslar and Ayedas power grids (US$1.7b and US$1.3b respectively).

Power prices to rise in the US

In the US, hybrid utilities – those with regulated and non-regulated portfolios – continued to divest competitive power generation assets. FirstEnergy, Dominion and Ameren Energy all announced sales of competitive assets in the quarter. 

Dynegy’s acquisition of Ameren’s competitive business for US$599m was warmly welcomed by investors. The deal is in line with Ameren’s strategy to exit the merchant generation business.

For Dynegy, the deal marks its resurgence from a bankruptcy restructure in 2012 and is expected to create value by building upon the company’s existing scale in key markets. The Ameren acquisition also gives Dynegy an established retail business with significant scale.

The deal encourages the growing sense that power prices may be on the rise, at least from the very low levels seen today. With upcoming coal retirements in companies such as PJM and declining reserve margins in the Electric Reliability Council of Texas (ERCOT), there is a hint of optimism.

Prices don’t need to rise much. For example, it has been reported that a rise of just US$1 per million metric British thermal units in gas prices will deliver Dynegy about US$330m in EBITDA.1

Cross-border and renewables up

Q1 2013 witnessed a surge in cross-border deal activity driven primarily by Canada, Germany and Japan.

  • Canadian investors focused on expansion of the clean energy portfolio and acquisition of natural gas assets, particularly in the US.
  • German utilities continued to grow their business outside their domestic markets.
  • Japanese investors focused on European renewable assets. Of the five outbound Japanese transactions in the quarter, four involved solar and wind assets, with Mitsubishi Corp. participating in three of them.

Renewables were generally on the rise this quarter, contributing 50% to global deal volume and 23% to value. While most of these deals took place in Europe, the Asia-Pacific region is seeing more renewable energy transactions and, in Q1, achieved a two-year high of US$3.8b. Large Chinese hydro deals contributed the bulk (US$3.1b).

Aggressive stance from financial buyers

Following a two-year high in 2012, financial buyers continued their aggressive stance into Q1 2013.

US-based private equity and infrastructure funds, such as Energy Capital Partners, emerged the most active bidders, participating in six deals worth a combined US$1.9b.

Transmission and distribution, merchant assets and renewable energy assets in Europe and North America were the key target segments for buyers. We anticipate that their investment in the sector will grow significantly in 2013, with a particular focus on network deals in Europe.

Anticipate the buyer

Expect an exciting year in P&U transactions with M&A activity on track to outpace 2012. Utilities are continuing to reshape their asset portfolios to deleverage from commodity volatility or increase footprint in high-growth markets, and creating significant opportunities for buyers and sellers.

As companies, particularly in Europe, continue their divestment programs, they will need to be aware of what the new breed of buyer wants. The essential ingredients for a successful program are:

  • Carve-out financials
  • Clear and concise financial and operation information
  • A well-articulated value proposition

Spotlight on China

Recent news that Chinese economic growth dipped slightly in Q1 2013 disappointed those hoping for an increase in its recovery.

However, despite market volatility and an uncertain global economic outlook, Chinese companies continued to rise in prominence in the global M&A market.

Positive foreign investment policies, diversification of funds and geographical expansion are driving outbound M&A, with the P&U sector a core focus for Chinese investors.

Most interest is in Europe’s privatization and divestment programs, although we also expect Chinese buyers to explore deals in Australia and the US in the future.

For more information

Capital on the move Read the full report here.

1 “Dynegy’s Power Play on Natural Gas,” The Wall Street Journal, 1 April 2013,