PRINT THIS PAGE Power deals: 2004 annual review
23/08/2005. Source:PricewaterhouseCoopers.
M&A activity is likely to increase in the power industry as leaders seek strong regional footprints in 2005, says PricewaterhouseCoopers in this look at mergers and acquisitions activity within the global electricity and gas market. The outlook for M&A activity in the North American power sector is positive and all but certain to build on 2004's strong volume, according to Power Deals 2004, PricewaterhouseCoopers' annual review of M&A activity in the industry. The expected increase in North American deal activity parallels a similar pattern in Europe and Asia as industry leaders struggle to establish strong regional, rather than global, footprints.
John McConomy, who leads the power and utilities practice of PricewaterhouseCoopers' Transaction Services group, said, "2004 witnessed a reawakening of M&A activity in the North American power market, with deal values tripling to $57.9 billion. The North American market remains fragmented, leaving significant room for consolidation, and the unraveling of previously announced deals means that there are immediate targets for power deal making in 2005."
Uncertainty regarding legislative and regulatory reforms, most notably the Public Utility Holding Company Act (PUHCA), remains the biggest barriers to full-scale consolidation of the regulated parts of the U.S. market. However, last year's healthy deal volume clearly indicates investors are interested in non-regulated businesses and regulated activities, such as pipelines and certain power generation assets, with comfortable levels of regulatory risk.
Jennifer Kreischer, a Transaction Services partner who specializes in the power and utilities sector, added, "Even without PUHCA reform this year, we're seeing a increase in the industry's appetite for M&A that will eventually yield a small number of 'super regional' players among North American utility companies. Worldwide, sustainable regionalization rather than aggressive globalization is the dominant sector strategy, with consolidating strength in regional markets replacing the quest for a global footprint."
According to Power Deals 2004:
Global deal value in the power generation and transmission sectors totaled $123.1 billion last year, up from $43 billion in 2003 and the highest level since 2001. The value of electricity deals - 80 percent of last year's total - more than doubled from $39.6 billion to $97.9 billion, while gas deals increased more than seven fold from $3.4 billion to $25.2 billion as companies seek secure transmission assets in a rising gas market.
North American deals contributed nearly half of global deal value, rising from $18.2 billion to $57.9 billion. Exelon's $26.1 billion purchase of PSEG set a new record for a single transaction.
At $57.2 billion, cross-border deal volume worldwide surpassed its 2001 high.
While horizontal and vertical integration were the driving forces behind more than half the industry deals in each of the past three years, new industry players and convergence are driving a growing number of transactions.
Non-utilities such as private equity and infrastructure funds continued to be significant players in 2004. In the U.S., the $2.9 billion acquisition of Texas Genco Holdings by GC Power Acquisitions-an entity owned equally by The Blackstone Group, Hellman & Friedman, Kohlberg Kravis Roberts, and Texas Pacific Group-was the largest purchase of power plants by a non-utility since the U.S. electric industry began deregulating a decade ago.
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