PwC US M&A Outlook: Robust Fourth Quarter Boosts 2010 North American Utilities & Power Generation Deals, According to PwC US

Regulated Utility Transactions Drives Fourth Quarter

Corporate Buyers Continue to "Buy vs. Build" to Capitalize on Undervalued Assets

Rise in Generation Asset Transactions Illustrates Pent Up Demand from Foreign Investors

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Feb 15, 2011, 10:20 ET

NEW YORK, Feb. 15, 2011 /PRNewswire/ -- North American Utilities and Power Generation merger and acquisition (M&A) activity experienced steady and modest growth in the final three months of 2010, driven by an increase in regulated utility transactions, which had been virtually absent for the past two years, according to North American Power Deals: Q4 2010, a quarterly snapshot of M&A by PwC US.

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According to PwC, the increase in regulated utility transactions, continued activity from corporate buyers finding more value in acquiring instead of developing assets and foreign investors' ongoing interest in gaining a foothold in the North American utilities and power generation industry bodes well for continued M&A activity in the utilities and power sector.

"Fourth quarter 2010 transaction activity continued the trend of modest, yet consistently announced regulated utility transactions, which began in the first quarter," said John McConomy, U.S. utilities and power transactions leader, PwC. "Generation asset transactions continue to illustrate pent-up demand to secure investments in the U.S. from Asian investors, while U.S. investors are seeking to capitalize on forward gas prices and potentially undervalued assets due to regulatory uncertainty, particularly in the environmental area. Moving into 2011, we expect regulated utility transactions to continue with an increase in generation activity as the legislative and regulatory uncertainty continues, especially around the price of carbon, driving opportunistic buying and fueling diversification."

In the fourth quarter of 2010, deals greater than $50 million totaled $19.2 billion, compared to $30.7 billion in the same period of the prior year. The drop in total quarterly deal value is attributed to a $24.5 billion transaction that occurred in the fourth quarter of 2009. When excluding that deal, which was the largest deal in the sector in three years, quarter-over-quarter deal value jumped 212 percent, while average deal value increased 161 percent to $1.6 billion in the fourth quarter of 2010 from $615 million in the fourth quarter of 2009. The total number of announced deals over $50 million remained relatively flat in the fourth quarter with 12 deals compared to 11 in the same period in 2009.

Corporates continued to lead power deal activity through the final quarter of 2010, contributing 64 percent of total deal volume, while financial investors represented 36 percent, the same percentage as the fourth quarter of 2009. Corporate transactions represented the top five deals in the fourth quarter, with $17.3 billion, accounting for 91 percent of total deal value, while asset transactions made up the remaining five. The largest 25 deals by transaction value in the fourth quarter were dominated by the power sector, accounting for 96 percent of activity, compared to 4 percent of alternative energy sources deals.

"Corporates and financial sponsors are sitting on large amounts of cash, and we expect they will continue to deploy their capital in power and utility deals in 2011," said McConomy. "Size and scale remains important for utilities, especially on the regulated side, where companies have significant capital expenditure requirements and generation needs, and buying versus building continues to be a more cost-effective way of expanding their operations and geographic footprint. Financial sponsors are continuing to signal their interest in asset opportunities and are seeing good multiples for their acquisition targets that can provide strong potential returns."

In 2010, deals with value greater than $50 million increased by $18.6 billion to $58.2 billion, representing a 47 percent increase. Total deal volume also increased to 47 in 2010 from 34 deals in 2009. When excluding the $24.5 billion deal in 2009, average deal value in 2010 increased a dramatic 278 percent from $445 million in 2009 to $1.2 billion in 2010.

The year-over-year increase in volume and value reflects the ongoing trends from the full year 2010-- leadership from corporates and increasing interest from financial sponsors and foreign investors. For the full year 2010, corporate deals comprised the majority of transactions with $39.2 billion or 67 percent of total deal value versus asset related deals, while financial sponsors contributed 33 percent or $19 billion in total deal value as they found strong opportunities in fossil-based and renewable power to put excess cash to work.

"As dealmakers in the utilities and power industry pursue their M&A plans, it is critical to have a holistic approach when assessing a target, including the regulatory and economic landscape, to realize the full risk and reward of the transaction," added McConomy.

For a copy of the North American Power Deals: Q4 2010 please visit: http://www.pwc.com/us/en/industry/utilities/publications/us-power-deals.jhtml

About the PwC Utilities and Power

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

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© 2011 PwC. All rights reserved. "PwC" and "PwC US" refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate and independent legal entity.

SOURCE PwC