Mega deal drives Q2 utilities M&A

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Deal volume and value in the power and utilities sector in the second quarter of 2013 experienced significant growth compared to the same period in 2012, according to PwC M&A research. Seven power and utilities deals worth $50 million or more represented a $12.5 billion in total deal value, compared to two deals totaling $668 million in the second quarter of 2012.

This growth was driven mainly by one "mega deal," which accounted for 83 percent of total deal value. Outside of this deal, value and volume did increase, in large part due to an elevated interest in U.S. assets among foreign investors. When excluding this mega deal, the total deal value was $2.1 billion -- more than double the total value of transactions in the second quarter of 2012.

"Low natural gas prices, slow load growth, increasing costs, and the thirst for yield are among the factors that continue to drive M&A activity in the power and utilities space," said Jeremy Fago, U.S. power and utilities deals leader, PwC. "In particular, divestitures continue to be prevalent in the industry. We're seeing companies focus on their core businesses, shedding underperforming assets and/or monetizing attractive contracted assets, especially with the need for liquidity and investment capital."

In the U.S. oil and gas sector, divestitures drove M&A activity in the second quarter of 2013, according to PwC. While second quarter deal volume and value decreased 26 percent and 43 percent, respectively, compared to the second quarter of 2012, interest in energy M&A transactions remained robust. 

There were a total of 39 oil and gas deals with values greater than $50 million, accounting for $17.2 billion in deal value, a decrease from the 53 deals worth $30.4 billion in the second quarter of 2012. Deal volume in the second quarter dropped by five percent compared to the first quarter of 2013, with deal value falling by 37 percent during the same time period.

"There were two main factors that caused a drop in announced deals during the second quarter - companies remained focused on the critical task of integrating assets they acquired during 2012 and sellers bringing deals to market that are fully priced," said Doug Meier, U.S. energy transactions and deals leader, PwC.

However, interest from potential buyers in acquiring quality assets continues. According to PwC, demand remains strong for gathering assets as companies look to build-out the infrastructure in shale plays. Three downstream deals added $1.1 billion, while oilfield services contributed four deals worth $3.6 billion during the second quarter of 2013.

Shale deals remained a key driver for activity in the second quarter, with 15 deals with values greater than $50 million that contributed $7.5 billion, or 44 percent of total deal value.

In the second quarter of 2013, there were no announced deals from foreign buyers, representing a significant change from previous quarters.

"Strategically, foreign buyers remain interested in U.S. oil and gas assets…we expect foreign buyers to continue to be active players in the U.S. oil and gas sector," said Meier.

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