Asia, Africa and US to lead power sector deal rebound, predicts PwC

Analysts at consultancy PwC are expecting merger and acquisition activity in the global power sector to rise this year after shifting down a gear in 2013.

In a new report, the company anticipates a “return of mega-mergers in the US power sector”, which it says will be “a key factor in driving worldwide power and renewables M&A value upward”.

PwC also highlights sub-Saharan Africa, Vietnam, Mongolia and Mexico as areas of likely investor interest.

The report, Power & Renewables Deals, states that in 2013, “technology, finance and energy politics” were all “sources of disruptive change” affecting the M&A deals in the power sector, resulting in deal value dropping 10 per cent from 2012 levels.

The only geographic area that bucked this trend was the Asia-Pacific, where deals were up 6 per cent, while the only power sector that went up instead of down was renewables, which saw a rise in deal value of 25 per cent.

Andrew McCrosson, partner at PwC power and utilities, said that while M&A activity in 2013 fell compared to 2012, “the investor mix widened and assets sold were more diverse than in previous years”.

“The sector continues to attract long term financial buyers interested in contracted or regulated returns.”

He said that in Europe “energy politics are intensifying, with the issues of security, affordability and sustainability becoming a political battleground, particularly in the UK. In some areas, we see this as a potential enabler of deals in 2014.”

He also said that the shale gas boom in the US “has fundamentally changed the economics of the gas market, with the result that lower European coal prices have left many gas fired plants on the sidelines. While most owners of these assets have sat out the last few years rather than close or sell, we can see that, in the medium term, gas could provide attractive opportunities for companies looking for power generation assets.”

The report predicts “a widening out of growth target markets with the balance shifting to faster growing markets and away from developed markets, particularly Europe”.

Norbert Schwieters, global power and utilities leader at PwC, said: “Some encouraging trends lead us, on balance, to anticipate upward deal momentum in the year ahead. After a year in which considerable sector uncertainty has affected deals, we anticipate greater confidence during 2014.

Rob McCeney, partner, US power and utilities, PwC, said: “With companies under rate pressure and having spent a considerable amount of time bedding down previous deals and taking cost out of their businesses, acquisitions are a timely route to finding synergy cost savings and maintaining earnings and dividend growth.”

McCrosson added that “the thirst of investors for yield continues unabated”.

“We see no let up in 2014. But it is a crowded market with a shortage of the right kind of power utility assets becoming available with long-term regulated or contracted returns. The traditional focus has been mainly on network assets but we are seeing signs that investors are willing to look at generation assets including those at the pre-operational stage.”

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