Power transactions and trends

Global power and utilities mergers and acquisitions 2012 review, 2013 outlook

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In 2012 the Eurozone crisis and decade-low US natural gas prices pushed companies to restructure asset portfolios. In 2013, regional issues will drive a robust transaction market that is expected to outperform 2012.

Deal value and volume (Q4 2008–Q4 2012)

Deal value and volume (Q4 2008–Q4 2012)

2012 deal activity declines, and financial buyers turn aggressive

Deal value in 2012 fell US$24.3b lower than 2011, primarily due to the weak macro environment, prompting buyers to focus on lower-risk transactions and internal cost reduction programs.

Despite this, the year witnessed several big-ticket transactions, led by European utilities looking to optimize asset portfolios. Owners of European regulated assets such as RWE AG, Eni SpA and state-run companies divested assets, either to fund-type investors or Asian trade, to reduce balance sheet debt and free up capital for deployment in emerging markets.

The US utility market saw the completion of several big mergers, including approval of the Exelon/Constellation Energy merger.

Financial buyer deal value reached a two-year high, contributing 31% to the total value in 2012, driven by a desire to secure predictable cash flows in a volatile equity and macro environment.

Veolia’s successful divestment strategy and future outlook

In an exclusive interview for this report, Hubert Sueur, Director of Investments, M&A and Equity Financing at Veolia, stresses the importance of quality of assets and meticulous planning in Veolia’s successful divestment program.

He throws light on the growing dominance of financial buyers in the last 12 to 18 months, with several PE and infrastructure funds at the head of the queue for Veolia’s divestments. Completing divestment plans will be the company’s key focus through 2013, while continued investment in new and emerging markets may be the focus from 2014.

Regional issues drive transaction trends in 2012

The price collapse in the EU CO2 market and cheap coal exported from the US made gas-fired power plants unprofitable in many parts of Europe, running at negative spark spreads and often running simply because of take or pay agreements with gas providers. Price signals for the near term are very weak, and this is reflected in the financing market.

Latin America remained buoyant, with Brazil attracting several foreign investors. The UK remained one of Europe’s most attractive markets, with its regulated power, gas and water sectors offering reasonable returns in a volatile environment. A number of cash-rich financial buyers entered the country seeking stable returns, pushing deal values up. In the German market, the country’s nuclear phase-out decision and switch to renewables influenced transaction activity.

Continued global diversion in natural gas prices, a collapse of the EUA spot price, and rising US coal exports to Europe were just some of the key issues that shaped the 2012 deal market.

2013 promises to be more robust

We anticipate a robust transaction environment in 2013, with investors favoring the yield of regulated assets over the volatility of other sectors and artificially low government bond yields.

As debt pressures still hang over many European utilities and US utilities seek to rebalance their holding in favor of regulated businesses, further divestments will continue to create transaction opportunities.

The capital will come from Asia and pension funds and will be dominated by a range of financial buyers. Brazil will emerge as a focus country, underpinned by investment opportunities in renewables and a stronger domestic market. Look for increased activity in Indonesia, Mexico and Turkey.

To access the detailed analysis of deal activity, what's been happening in the Power & Utilities M&A landscape in 2012, and what to expect in 2013, download the full report Power transactions and trends - 2012 review and 2013 outlook.


Deal value and volume (Q4 2008–Q4 2012)

Deal value and volume (Q4 2008–Q4 2012)

Last year proved to be robust, despite not living up to the highs of the end of 2010 and the start of 2011, a period that was dominated by mega-mergers (including Duke-Progress for US$26b in Q1 2011). Volume and value uptick in Q4 2012 provides momentum for 2013.