The merger and acquisition (M&A) environment in the United States provides reason for continued optimism in the Utilities and Power Generation sector as deal value increased 14 percent in Q2 2010 from the previous quarter, according to a new PricewaterhouseCoopers LLP quarterly report entitled North American Power Deals: Q2 2010.

In the second quarter of 2010, overall deal activity in the U.S. Utilities and Power Generation sector continued to show improvement, especially compared to previous quarters in 2009. There were 21 deals announced in Q2 2010 greater than $50 million, a 38 percent increase compared to both the first quarter of 2010 and the last quarter of 2009, which had 13 deals each greater than $50 million.

"A spate of deal announcements in early 2010 has the power and regulated utilities industry in the U.S. cautiously optimistic about M&A revival," said John McConomy, U.S. power & utilities transactions leader. "Two large deals in the second quarter helped drive the overall value of deals. Although it's difficult to conclude whether this recent activity indicates any lasting trends, a wave of industry consolidation might be building, especially if the recently announced deals reach the finish line. If those deals receive timely regulatory approvals, the industry should anticipate more M&A activity on the regulated side."

During Q2 2010, four of the top 10 deals were greater than $1 billion, indicating a loosening of the credit markets and a possible return to large deal activity. The average deal value in Q2 2010 was $745 million, a slight decrease from Q1 2010 at $1.032 billion per deal but far greater than 2009 which topped out at $529 million in average deal value in Q4 2009.

Natural gas distribution accounted for the majority of deal value, coming in at 67 percent. Electric power distribution was the next largest at 16 percent. Electric power and natural gas were almost even in terms of total number of deals, coming in at 28 percent and 32 percent respectively.

"We are certainly at an inflection point in the utilities industry," continued McConomy. "Stimulus funds and smart grid implementations are a big part of the mix for many utilities, and certain acquisitions and divestitures will play a vital role in determining the potential success or potential failure of utilities as they adjust to a smart grid world."