With power and utilities companies continuing to grapple with uncertainties around the slow economic recovery, record low natural gas prices, pending and proposed environmental regulations, and obstacles in the regulatory approval process, North American power and utilities mergers and acquisitions (M&A) activity continued to decline in the first half of 2012, according to PwC US.
In the first half of 2012, there were a total of seven announced deals with values greater than $50 million, totaling $4.1 billion in deal value compared to 32 deals generating a total of $53 billion in the first half of 2011.
"While challenges hovering over the power and utilities sector are expected to continue over the short term, the industry continues to be ripe for consolidation. Companies have been watching the regulatory approval process of major announced transactions and we anticipate that the successful approvals that occurred in the first half of this year will lead to stronger M&A activity in the regulated space in the second half," said John McConomy, PwC's US power and utilities transaction services leader.
The industry saw an overall trend toward asset deals with an emphasis on alternative energy transactions in the first half of 2012, and although the number of power deals was down significantly, with the recent NRG-GenOn merger announcement, the outlook for increased deal activity during the second half of the year looks more promising.
"We expect to see more activity on the unregulated power side as well with continued low natural gas price levels and environmental compliance decisions driving deal activity as liquidity and access to investment capital becomes increasingly critical," said Jeremy Fago, PwC's US power and utilities valuation services leader.
The average value of announced deals greater than $50 million decreased to $580 million from $1.7 billion during the same six month period in 2011.
With regard to foreign interest in North American utilities and power generation, PwC continues to see a significant slowdown in inbound investment in regulated utilities due to potential energy policy and regulatory changes and challenges.