London, March 2010

Mergers and acquisitions activity within the global electricity and gas market: The power deal spotlight in 2009 continued to shift away from the very large deals of earlier years as companies focused their attention on smaller acquisitions.

The overall market for power deal activity remained relatively buoyant, with the number of electricity and gas deals only 10% down in the main non-renewables power deal sector despite the more constrained financial and uncertain economic climate. These are among the key findings of PricewaterhouseCoopers annual Power Deals review.

Only those companies with balance sheet strength were active players for bigger deals as small deals became the order of the day. Deal numbers dipped 10% but remained at relatively high levels. However, average power deal value (excluding renewables) plummeted from US$428 million in 2008 to US$262 million in 2009. Total deal value across the whole of the sector (including renewables) was barely half (56%) of its 2008 level.

Looking ahead, we see positive signs for deal activity marginally outweighing negative factors. We are, thus, cautiously optimistic about the prospects for power deal activityin the year ahead. We do not rule out major international moves as companies with strong balance sheets look for opportunities to grow worldwide scale.

Small yet plentiful is the name of the game in power deal-making according to PricewaterhouseCoopers report. Mark Hughes, European energy leader, PricewaterhouseCoopers, said: “Consolidation in Western Europe has reached a more advanced stage but this could prove a platform for a reawakening of wider international ambition. The speculation surrounding Suez and International Power shows the potential for major international M&A moves. Within Europe, network divestment will continue to be a deal driver.

“The sharp fall in deal value was felt right across the different segments of the industry but was mildest in renewables where total deal value was down 14% on 2008 levels. However, renewables accounted for the largest drop in deal numbers – 36%. Deal flow for non-renewable and other electricity assets proved the most resilient with an 8% year-on-year fall in numbers as buyers remained active, albeit for smaller acquisitions.”

In contrast, Asia Pacific and South America’s share of worldwide non-renewables power deal value advanced significantly in 2009. Together these two regions accounted for 25% of target value and 27% of bidder value, a big increase on the 13% bidder and target share they enjoyed in 2008.  Following a rally in the two preceding years, North American deal numbers went the same way as deal values in 2009 with a sharp fall downward.  The only North American deal in the top 10 came in Canada with the US$3bn debt induced sale of hydro and nuclear generation assets by Canadian New Brunswick Power to Hydro-Québec.

In the UK, Centrica paid US$3.5bn for a 20% stake in nuclear power company British Energy. As part of the 2008 EDF purchase of British Energy, the two companies had announced a non-binding agreement for Centrica to purchase a stake of up to 25% at the same price as that paid by EDF.

Almost a fifth of worldwide power deal target value (including renewables) came from the Asia Pacific region in 2009, second only to Europe and eclipsing North America for the first time ever. Total Asia Pacific power deals value was US$22.7bn – nearly US$2.6bn higher than that of North America.

Manfred Wiegand, global utilities leader, PricewaterhouseCoopers commented: “Our quarterly analysis of power deal activity during 2009 is indicative of how deal numbers remain relatively buoyant but deal value has dipped to a much lower level. After a first quarter that saw a total deal value of US$38.5bn, quarterly deal values dipped and followed a trend around the US$20bn volume mark for the remainder of 2009.”

“The coming year will be one of obstacles and opportunities. The constrained availability of finance will inhibit deal activity and, until that situation is eased, there is unlikely to be a revival in deal values. But with some businesses running short of cash for needed expansion or facing refinancing challenges, businesses and assets may become available for corporates with strong balance sheets and cash flows.”

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