|  21.08.2013

Mega-deals boost power and utilities Q2 global deal value by 30%

Q2 2013 emerged as an exciting quarter for the global power and utilities (P&U) sector

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While volume remained flat, there were a handful of ‘mega deals’ during Q2 2013 in the global P&U sector that sparked this 30% rise in mergers and acquisitions (M&A) value to US$33.0b, compared with US$25.3b during Q1 2013, according to EY’s quarterly Power transactions and trends report. The US$10b acquisition of the American producer, transporter and distributor NV Energy by MidAmerican Energy Holdings, the P&U division of Warren Buffet, was the marquee deal within this quarter.


Asia-Pacific M&A value rose 71% in Q2 2013 on Q1 2013, with Chinese inbound M&A activity contributing 81% to the region’s deal value. Restrictions on ownerships of power assets in Japan and low domestic profit margins in China means this is likely to increase further in the coming months as utilities are pushed to explore foreign acquisitions.


Joseph Fontana, EY Global Transactions Power & Utilities Leader, says: “Outbound Chinese investment continued in Q2 2013, with two key deals featuring China’s state-owned grid operator moving into the Australian power sector. Lower profit margins in the domestic market are prompting the Chinese utility to explore developed markets, which offer a stable regulatory environment and relatively higher returns.


US utilities focus on local growth


While US P&U utility stocks continue to trade well above 10-year historical averages, the recent market correction reflects the shifting market conditions in the sector. During Q2 2013, US utilities continued the tough search for growth through M&A activity, with some sizable acquisitions taking place.


European activity falls with absence of large European divestments


While volume remains flat, an absence of large European divestments meant there was a 46% decline in deal value from Q1 2013. Q2 2013 witnessed European asset divestments of approximately US$7.3b, compared to US$8.7b in Q1 2013 and US$12b in Q4 2012. However, large transmission and distribution deals are anticipated later this year and so a bounce back is expected. There is also continued uncertainty on renewable energy regulation in Spain, as the government’s plan to cut subsidies and cap profitability is expected to push developers toward emerging markets with more favorable regulation.


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