Mergers and acquisitions (M&A) in the North American power and utilities industry increased significantly on a volume and value basis in the second quarter of 2014, both as compared to the previous quarter and year-over-year, according to PwC US' quarterly deals snapshot North American Power & Utilities Deals: Q2 2014. A combination of regulated and merchant transactions, as well as continued activity by YieldCos, pushed total deal value to the highest quarterly level since 2011.
There were 13 power and utilities transactions with announced deal values greater than $50 million in the second quarter of 2014, compared to seven during both the second quarter of 2013 and the first quarter of 2014. Six mega deals (deals greater than $1 billion), the highest number of mega deals in a quarter since the second quarter of 2006, contributed nearly 93 percent of the $34.9 billion total deal value for the quarter.
"Companies in the power and utilities industry are strategically pursuing assets, including those in close proximity to their existing geographic markets and/or with similar business models, to drive scalable growth and achieve operational synergies," said Jeremy Fago, PwC's U.S. power & utilities deals leader. "Hybrid utilities have continued to evaluate their merchant portfolios and the potential for divesting certain merchant assets, while regulated utilities and YieldCos continue to present an attractive investment for their yields and stable cash flows. Together, these types of deals have built on the power and utilities deal momentum we saw in the second quarter, and going forward, we expect the M&A environment to continue to pick up through a combination of regulated, merchant and YieldCo driven transactions."
Strategic investors accounted for 93 percent of deal value greater than $50 million announced during the second quarter, compared to 77 percent in the first quarter of 2014. "Strategic investors are proactively managing their businesses to find new opportunities for growth and solidify their long term strategy in a dynamically changing industry," continued Fago. "Well-positioned companies are deploying capital to acquire quality assets that can expand their geographic footprint. They are also looking inward and are making strategic investments to upgrade and secure aging infrastructure, improve operational processes and engage with employees and customers."
Financial investors were active on three deals that accounted for seven percent of total deal value in the second quarter of 2014. "Private equity continues to be successful in acquiring divested assets that do not fit into the long-term business plans of their strategic owners," said Rob McCeney, PwC's U.S. energy & infrastructure deals partner.
Alternative power deals in the second quarter of 2014 increased significantly on a value basis, both as compared to previous quarter and year-over-year, primarily driven by one mega deal valued at $2.5 billion. However, alternative power deals continued to comprise only a small portion of total deal value, representing eight percent of deal value for deals greater than $50 million through four deals valued at $2.8 billion.
About the PwC Power and Utilities Practice PwC provides assurance, tax and advisory services to the power and utilities industry. Using deep industry experience, PwC helps top power and utilities companies gain operating efficiencies across the business value chain, from fiscal integrity and regulatory issues to increased customer service and talent management.
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