Returning to the foothills rather than scaling mountain peaks is the name of the game for power-deal making in 2011, says PwC
3/3/2011 9:45
The global power deal market is finally seeing an upward trend in momentum from the lows reached in 2009.Total deal value in the power and gas utilities sectors (excluding renewables) is up 19% year on year from US$98bn to US$116bn in 2010 – a year which also saw an end to the deal stalemate in the US with a renewed deal flow that looks set to continue this year. Compared to the heady mountain of power deals transacted between 2005-2008, deal values remain low but conditions are in place for a return at least to the foothills of these peaks, according to PwC’s annual Power Deals review.
Globalisation of the power sector is moving forward on a number of fronts with, for example, companies looking at gaining a larger presence in growth markets, strong international interest in infrastructure assets and signs of greater Chinese involvement, not just from grid companies but also independent power producers.
Expansion remains high on the agenda for a number of European companies as they weigh up moves to step up their international presence. For example, IP and GDF Suez have signalled that their merger will result in an initial period of rationalisation across their combined portfolio, followed by expansion in key growth markets. Additionally, E.ON could make the first moves in its growth market strategy.
Mark Hughes, European energy and utilities leader, PwC, said:
“While we believe this deal revival will continue, much will depend on the extent to which demand returns in the main developed markets to give companies confidence in their capital expenditure renewal and new build programmes.
“If it does, we can expect promising conditions for the divestment opportunities that some companies will be seeking. In Europe particularly, this flow is likely to accelerate as firms free up capital and attract interest from sovereign wealth, infrastructure and pension funds.”
Government clean energy policies will play an important role in shaping the background to deal activity this year and will increase the extent to which the price of power assets and, in turn, M&A valuations are determined by regulatory frameworks. The major capital expenditure and operational priorities faced by companies will reduce the scope for big acquisitions but, in turn, also spur smaller scale restructuring.
Manfred Wiegand, global utilities leader, PwC commented:
“The trend towards global power deals, with cross continental acquisitions, will potentially step up a gear in 2011 as for example with Asia Pacific, the focus of deal activity has switched to encompass more investment in targets outside the region . Also, the reaction to date of US regulators to the 2010 announced deals, suggests that the door is now more open to a greater flow of regulated utility deals.
“However, the continued deal flow in the US will hinge on the extent to which state regulators place hurdles in the way of completion. Further consolidations, network divestments in Europe and the continued outbound and inbound Asia Pacific deal appetite are set to keep totals buoyant in 2011, although stopping short of the acceleration needed for a return to the deal numbers of the mid 2000s.”
Globalisation of the power sector is moving forward on a number of fronts with, for example, companies looking at gaining a larger presence in growth markets, strong international interest in infrastructure assets and signs of greater Chinese involvement, not just from grid companies but also independent power producers.
Expansion remains high on the agenda for a number of European companies as they weigh up moves to step up their international presence. For example, IP and GDF Suez have signalled that their merger will result in an initial period of rationalisation across their combined portfolio, followed by expansion in key growth markets. Additionally, E.ON could make the first moves in its growth market strategy.
Mark Hughes, European energy and utilities leader, PwC, said:
“While we believe this deal revival will continue, much will depend on the extent to which demand returns in the main developed markets to give companies confidence in their capital expenditure renewal and new build programmes.
“If it does, we can expect promising conditions for the divestment opportunities that some companies will be seeking. In Europe particularly, this flow is likely to accelerate as firms free up capital and attract interest from sovereign wealth, infrastructure and pension funds.”
Government clean energy policies will play an important role in shaping the background to deal activity this year and will increase the extent to which the price of power assets and, in turn, M&A valuations are determined by regulatory frameworks. The major capital expenditure and operational priorities faced by companies will reduce the scope for big acquisitions but, in turn, also spur smaller scale restructuring.
Manfred Wiegand, global utilities leader, PwC commented:
“The trend towards global power deals, with cross continental acquisitions, will potentially step up a gear in 2011 as for example with Asia Pacific, the focus of deal activity has switched to encompass more investment in targets outside the region . Also, the reaction to date of US regulators to the 2010 announced deals, suggests that the door is now more open to a greater flow of regulated utility deals.
“However, the continued deal flow in the US will hinge on the extent to which state regulators place hurdles in the way of completion. Further consolidations, network divestments in Europe and the continued outbound and inbound Asia Pacific deal appetite are set to keep totals buoyant in 2011, although stopping short of the acceleration needed for a return to the deal numbers of the mid 2000s.”
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