Slow economic growth, depressed natural gas prices, ongoing changes to environmental proposals and the regulatory process of recently announced transactions contribute to stalled deal activity in the first quarter
NEW YORK, April 26, 2012 ― North American power and utilities mergers and acquisitions (M&A) activity declined in the first quarter of 2012, according to North American Power Deals: Q1 2012, the first quarter industry M&A snapshot by PwC US. Several factors contributed to the decline including concerns about the weak economy, changing national environmental proposals, natural gas prices hitting a 10-year low, and the governing process on regulated transactions.
In the first three months of 2012, there were a total of five announced deals with values greater than $50 million, totaling $3.4 billion in deal value compared to 14 deals generating a total of $30.3 billion in the first quarter of 2011. The average value of announced deals greater than $50 million decreased to $679 million from $2.2 billion during the same three month period in 2011, primarily due to one large strategic deal in the first quarter of 2011.
“While transactions are still top of mind for power and utilities executives across the country, the industry continued to watch the regulatory approval progress of announced deals. The first quarter saw two deals close 11 and 18 months after announcement and one major deal continues to work through the approval process. Additionally, the slow economic recovery, lack of load growth, pending carbon legislation and the price of natural gas added to the hesitancy of companies to pursue their growth strategies through M&A,” said John McConomy, PwC’s US power and utilities transaction services leader. “As the 2010 and 2011 announced corporate transactions draw to conclusion, the market should expect renewed corporate merger activity, as well as interest from infrastructure funds in pure-play regulated utilities.”
Strategic buyers accounted for the majority of deals (60 percent) in the first quarter with three transactions worth $2.9 billion, while financial investors made up two of the five deals in the quarter that represented $487 million. Domestic deal activity contributed to all five transactions greater than $50 million.
“Generation asset transaction activity remains depressed, but more liquid markets continue to draw investor attention particularly with continued environmental regulatory uncertainty,” said Rob McCeney, U.S. power and utilities transaction services partner with PwC.
Power vs. renewable deals
"We expect to see a slowdown in wind project development as the product tax credit approaches expiration," added Jeremy Fago, PwC’s U.S. power and utilities valuation services leader. "We’re also seeing unscrubbed coal facing tougher retrofitting investment decisions as natural gas prices continued their downward trend."
PwC’s North American Power Deals analysis is a quarterly report of the most recently announced North American transactions with value greater than $50 million analyzed by PwC using transaction data from Thomson Reuters that includes unregulated power generation and regulated utility (electric, gas and water) transaction activity. For a copy of the report, please visit: http://www.pwc.com/us/en/industry/utilities/publications/us-power-deals.jhtml
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