Power, Utility Mergers and Acquisitions to Rise in 2001
If you were among those amazed by the virtual hailstorm of
mergers and acquisitions in the power and utility sector this year,
PricewaterhouseCoopers warns, you haven't seen anything yet.
According to an M&A forecast by the Transaction Services group
within the firm, the "once sleepy and over-regulated [energy]
industry" is the key M&A segment to watch in 2001.
The group pointed to numerous factors including the fact that
utilities remain undervalued in relation to the S&P 500 based
on historical discounts, despite the sector's strong stock
performance year to date. The company said an abundance of
value-unlocking opportunities remain for acquirers. Since
unregulated independent power producers (IPP) are outperforming
regulated utilities as the markets have placed a higher relative
value on generating and trading assets, PricewaterhouseCoopers said
to look for IPPs to arbitrage their strong stock and credit ratings
to purchase generating assets from traditional utilities.
"The forces that drove M&A strategies in 2000 will
accelerate in 2001. IPP's will continue to actively grow their
generation portfolios and M&A will be a critical means to this
growth. Utilities, in their quest to increase shareholder value,
will accelerate their efforts to unlock the value of their
generation and trading portfolios - either through disposals or
spin-offs/split-offs," said Doug Meier, lead Transaction Services
partner for the power and utilities industry at
The group said expanding deregulation will force more utilities
to merge and consolidate to survive in the market independently.
These consolidations will create "super-regionals."
The company advises that besides the large domestic
super-regionals, which will focus solely on being low-cost
producers, there will be a surge of new era energy service
companies much like the deregulated financial services and
telecommunication industries have seen. This new style of energy
company will aim to be a multi-service and technology provider. In
order to evolve into a one-stop-shopping company, analysts said
mergers, acquisitions, joint ventures and strategic alliances will
be integral components.
The company also pointed toward global deregulation as a key
factor for a strong M&A year.
"Economies of scale will continue to be an important rationale
for utilities looking to implement their strategies of growth
through geographic diversification," Meier said. "Finally, let's
not forget the importance of globalization. Look for UK and
European utilities to continue their expansion into the U.S.
Similarly, I expect the U.S. IPPs and utilities to continue to
selectively expand their presence outside of the U.S."
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