North American Power and Utility Companies Increased Focus on Merger Integration and Closings in Third Quarter, According to PwC US

Smaller Transactions Constrain Total Deal Value

News provided by

Nov 02, 2011, 09:00 ET

NEW YORK, Nov. 2, 2011 /PRNewswire/ -- The robust deal activity seen in the North American power and utilities sector in the first half of 2011 slowed significantly during the third quarter of the year as dealmakers shifted their focus to integration and successfully closing transactions that were previously announced, according to PwC US. While third quarter merger and acquisition (M&A) deal value fell 72 percent from the same period in 2010, executing on deal strategy remains the priority for power and utilities companies, according to the quarterly M&A snapshot – North American Power Deals: Q3 2011, released today by PwC.

(Logo: http://photos.prnewswire.com/prnh/20100917/NY66894LOGO)

With nine deals valued over $50 million generating $3.1 billion dollars, North American power and utilities deal activity reached a near-record low for the three-month period ending September 30. During the same period in 2010, 14 transactions with $10.9 billion in total deal value were announced – more than three times the total value in the third quarter of this year. According to PwC, dramatic global market fluctuations contributed to the decline of power and utilities M&A activity during the third quarter.

"A noticeable absence of large strategic buyers in the third quarter resulted, in part, from uncertainty around the fate of regulated transactions, causing dealmakers to focus on closings and successful integration of deals announced throughout the first half of the year," said John McConomy, U.S. power and utilities transaction services leader with PwC. "Stock price volatility and debt concerns also contributed to deal slowdown in the third quarter and we believe many in-process and contemplated deals are being deferred until the capital markets settle down."

Strategic buyers, however, still continued to dominate the deal landscape during the third quarter, representing eight of the nine deals announced and nearly $3.1 billion and 92 percent of total deal value. However, deal size was significantly smaller, with average deal size declining to $342 million from $781 million as seen in the third quarter of 2010, and from an average deal size of nearly $1.6 billion during the second quarter of 2011. For deals with value over $50 million, only one —a $238 million deal— involved a financial investor.

With regard to deal type, corporate transactions supplied five deals and nearly $1.7 billion, while asset deals supplied four deals and $1.2 billion, with asset deals slightly leading in deal value.

"Lingering uncertainty surrounding long-debated carbon-emission rules and legislation and a challenging lending environment caused financial investors to pause before executing plans to add renewable energy capacity to their portfolios in the third quarter," said Rob McCeney, U.S. power and utilities transaction services partner, PwC. "Until the long-term outlook for fuel and natural gas resources is clearer, we expect investors will aim to leverage current power purchase agreements (PPAs) and restructure their assets to gain access to capital."

The number of alternative energy deals by target decreased to two from four in the third quarter of 2010, while the number of announced power deals decreased to seven from 10.

Seven transactions from domestic buyers accounted for approximately $2.4 billion as foreign inbound interest in North American power and utilities assets remained sluggish with only two transactions.

"As expiration of the Section 1603 grant in-lieu of credit approaches, tax appetite will become increasingly important; and we expect to see an increase in activity around tax equity deal structures after year-end. A near-term surge to get wind projects in service next year absent PTC extension is expected to help drive activity in the coming year," added Jeremy Fago, U.S. power and utilities valuation services leader for PwC. "Although state RPS will still offer incentive for renewable activity, as tax and grant programs roll off, without consistent grid parity and improved fundamental market conditions, a relative slowdown in renewable activity should be expected."

For a copy of North American Power Deals: Q3 2011, please visit: http://www.pwc.com/us/en/industry/utilities/publications/us-power-deals.jhtml

About the PwC Power and Utilities Practice

PwC provides assurance, tax and advisory services to the power and utilities industry. Using deep industry experience, PwC helps top power and utilities companies gain operating efficiencies across the business value chain, from fiscal integrity and regulatory issues to increased customer service and talent management.

About the PwC Network

PwC firms help organizations and individuals create the value they're looking for. We're a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.

© 2011 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

SOURCE PwC