Third quarter deal value for power, utilities sector surpasses $11 billion

PwC US

Mergers and acquisitions (M&A) deal value in the North American power and utilities industry reached $11.1 billion during the third quarter of 2014, according to PwC US’ quarterly deals snapshot, “North American Power & Utilities Deals: Q3 2014.”

The third quarter’s 141 percent increase in deal value over the same period last year was driven by larger asset deals and an increase in alternative transactions.

There were 12 power and utilities transactions (with announced deal values greater than $50 million) accounting for $11.1 billion in the third quarter of 2014, which was a 141 percent growth in deal value compared with 12 deals worth $4.6 billion in the third quarter of 2013.

Asset transactions accounted for nine deals that totaled $9 billion, or 75 percent of total deal volume and 81 percent of total deal value in the third quarter of 2014. Alternative power deals comprised 26 percent of total deal value compared with 12 percent during the same period a year ago.

Deal value increased year-over-year, but it declined significantly on a sequential basis because of the large corporate deals in the second quarter of 2014. During that period, four corporate megadeals (deals greater than $1 billion) accounted for $28.4 billion, or 81 percent of total value in the second quarter of 2014, which had the highest quarterly value since 2011.

“Deal activity in the power and utilities industry remained steady in the third quarter as companies made strategic acquisitions of assets and businesses to deliver shareholder value,” said Jeremy Fago, PwC’s U.S. power and utilities deals leader. “Divestitures of nonregulated power generation assets and businesses are adding scale to and growing the number of independent power producers in the market. At the same time, YieldCos are continuing to pursue assets, with a particular focus on renewables, to feed their business models and sustain growth in cash flows.”

Financial investors were active in the quarter, participating in three deals that accounted for 24 percent of total deal value.

“Private equity investors continue to buy and sell assets as merchant generation supply and demand fundamentals recover,” said Rob McCeney, PwC’s U.S. energy and infrastructure deals partner.

Strategic investors accounted for 76 percent of total deal value during the third quarter of 2014, compared with 72 percent during the same period in 2013.

“Going forward, we may see the vertical integration of gas pipeline assets with power utilities as a result of new rules and regulations that promote the increased use of natural gas,” Fago said. “Focus on yield will continue to be a theme driving YieldCo activity and perhaps even transmission related REIT opportunities.”

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