Merger and acquisition activity in the global electricity and gas sector is entering a new era of blockbuster deals, according to a new report from analysts at PricewaterhouseCoopers Global Energy, Utilities and Mining group.
Following a record-breaking year in 2005, due largely to the rise of ‘super-regional’ utilities and consolidation in Europe, the sector is set for further escalation in deal volumes and values this year, says PwC’s Power Deals report.
During 2005 some 527 deals valued at a total of $196 billion, including five deals exceeding $10 billion, setting new records for the number of deals, the total value of deals, the value of a single deal and the number of mega-deals.
“The electricity and gas M&A activity surpassed the exceptional momentum that had already built up and is continuing to gain speed in 2006,” said Manfred Wiegand, global utilities leader at PwC. “We are seeing a new era of ‘blockbuster deals.’ Companies are consolidating and extending their regional footprints to attain non-organic growth in a tight sector facing high fuel prices and security of supply concerns. We are also seeing greater involvement of financial players in the market with the rise of infrastructure funds creating a new asset class,” Wiegand continued
European activity is fuelling the huge surge in total deal activity as utility companies move to consolidate in the EU in advance of full liberalisation by 2007, says the report, but numbers and value also rose virtually across the board. There is a global trend toward domestic consolidation, with domestic deals accounting for 71% of all deals in 2005. Said Wiegand, “As we look ahead, we can expect to see greater integration of upstream and downstream entities and more moves by the mega-players. The attitude of the competition authorities will be critical to future deals.”
According to the report, increased gas prices are leading to a greater focus on nuclear, clean coal and renewable assets, while security and supply concerns are reinforcing the drive to diversify and bulk up in assets, particularly in Europe. In all territories, gas and carbon dioxide prices will play an important role in determining deal strategies, the report concludes.