In a sign of improved deal-making conditions, Q2 saw global power and utility total deal value increase from $26bn to close to $48bn, representing a 84 per cent increase on the previous quarter.

This is the headline finding of Ernst & Young’s (E&Y) Power Transactions and Trends report, which was published today.

In another positive sign, the deal volume rose 20 per cent compared to Q1 2012, while the average deal value increased 35 per cent over the previous quarter and 72 per cent over the previous year, to stand at $855m.

Another key finding of the report was that Asia-Pacific, along with Europe, dominated deal activity, while the Americas continued to witness a weak mergers and acquisition (M&A) environment

Joseph Fontana, Ernst & Young Global Transaction Advisory Power and Utilities leader, confirms that the deal volume in Asia increased by 140 per cent, while deal value escalated from $3.5bn in Q1 2012 to $20.2bn in Q2, contributing to three of the top ten deals in the quarter.”

The report also found that financial buyers came to the fore in Q2 2012, accounting for 55 per cent of the total deal value of $47.9bn, and representing five of the top ten deals in the quarter.

According to E&Y. the divestment programmes undertaken by utilities have created opportunities for financial buyers to invest in assets with predictable cash flows, which are particularly prized in the current environment.

On a less positive note, the renewable energy sector, which continues to struggle with subsidy uncertainty, experienced a decline in the deal value in Q2, falling to almost half of its Q1 2012 value.

According to E&Y, the decline was driven by the American and European regions, which are facing limited support for renewable energy. Renewables are also struggling to compete against cheap alternate fuels, such as coal in Europe and gas in the US.

Fontana, however, is bullish for the remainder of 2012, and expects the second half of the year to remain positive for deal-makers, as utilities continue to rationalize their portfolios.

“With divestments here to stay, Asian and financial investors will continue to be the front runners for prized assets. Deal activity in the emerging economies of Brazil and Argentina is expected to move up, while we expect Canadian investors will continue to eye-up US utilities,” he concludes.

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