PwC US M&A Outlook: Third Quarter 2010 Utilities & Power Generation Sector Deal Value Jumps More Than 100% Over 2009 Boosted by Larger Deals and Improved Access to Capital, According to PwC

Power Deals Dominate Transaction Value and Volume; Continued Inbound Interest for Renewables; Financial Sponsors Expected to Source Opportunistic Deals in Stand Alone Assets

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PwC

Nov 11, 2010, 07:00 ET

NEW YORK, Nov. 11, 2010 /PRNewswire/ -- Overcoming a cloud of uncertainty the last two years due to potential energy policy and regulatory changes and concerns for the macro-economic outlook, the utilities and power generation sector experienced a significant upswing in deal value in the third quarter of 2010. According to North American Power Deals: Q3 2010, a quarterly snapshot of mergers and acquisitions (M&A) by PwC US, there are a number of key factors that has made the utilities and power generation industry ripe for transactions.

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For the three month period ending September 30, 2010 there were 13 deals with a value greater than $50 million totaling $10.5 billion - an increase of $5.4 billion, more than double the value in the third quarter of 2009 which saw 11 deals totaling $5 billion. In the first nine months of 2010, deal value reached $30.7 billion with 33 announced deals, representing a 43 percent increase in volume and 245 percent increase in value for deals over $50 million over last year.

The average value of deals over $50 million also increased significantly from an average of $459.6 million in the third quarter of 2009 to $805 million in the third quarter 2010, representing a 75 percent increase in average deal value, according to PwC.

"As access to capital improves, companies are moving forward and assessing and executing on their deal strategies again, whether by merging to achieve scale, 'buying versus building' or shedding assets no longer core to their operations," said John McConomy, U.S. power & utilities transactions leader, PwC. "Deals for traditional generating assets have heated up and will continue to drive the M&A market in the near term. We expect to see additional opportunistic buying from corporates and new financial players, like certain private equity and infrastructure funds, taking interest in this sector."

In the third quarter, the largest announced transactions were dominated by the Power sector, which generated $9.3 billion, or 87 percent of deal value, and 60 percent in deal volume, according to PwC. Meanwhile, deals from the Alternative Energy sector represented 36 percent of volume with $1.3 billion in value.

"While activity remained robust in the third quarter, it is interesting to note that deals are being driven by both corporate and financial buyers - each contributing an equal 50-50 split to overall deal value," continued McConomy. Financial buyers contributed $5.1 billion, while corporate buyers contributed $5.4, according to PwC.

With regard to foreign interest in North American utilities and power generation, PwC continues to see inbound interest in renewables but has seen a significant slowdown in inbound investment in regulated utilities due to potential energy policy and regulatory changes and challenges.

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© 2010 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