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Power, Utility Sector M&A Activity Ramped Up in 4Q2013

Merger and acquisition (M&A) activity in the North American power and utilities industry increased in 4Q2013 compared to both 3Q2013 and 4Q2012, with several large deals based on natural gas-fired power generation facilities driving overall deal volume and value higher, according to an analysis by PwC.

The quarter included 14 power and utilities transactions valued at more than $50 million each, compared to 12 in 3Q2013 and 13 during 4Q2012, PwC said. Bolstered by two large corporate deals that combined were worth nearly $7.4 billion -- NRG Energy Inc.'s acquisition of Edison Mission Energy (EME) (see Daily GPI, Oct. 18, 2013) and the merger of Fortis Inc. of Canada and UNS Energy Corp. -- 4Q2013 deal value reached $10.3 billion, more than twice the deal values sequentially and year/year.

"Closing out the year with such a high level of activity is a positive sign for 2014 deal activity," said PwC’s Jeremy Fago, U.S. power and utilities deals leader.

"Investors continue to be attracted to assets that generate strong yields, and combined with cash on the sidelines, sellers are seeing this as a good time to bring assets to market. We’re also seeing increased activity around assets in regions of tightening supply and demand dynamics, as well as those fitting the YieldCo investment profile."

With natural gas-fired and renewable generation assets as an attraction, Princeton, NJ-based NRG in October entered a $2.5 billion "planned sponsor agreement" with EME and some of its subsidiaries to acquire the Chapter 11-mired independent power generation company. The deal would add nearly 8,000 MW to NRG's already substantial portfolio of independent electric generation plants.

Other deals cited by PwC included The Blackstone Group LP's $685 million acquisition of three gas-fired power stations from Direct Energy (see Daily GPI, Dec. 20, 2013); Calpine Corp.'s $625 million purchase of a gas-fired power plant near San Antonio (see Daily GPI, Dec. 5, 2013) and Lower Mount Bethel Energy's $455 million acquisition of the 600 MW gas-fired LMB Energy Power Project in Lower Mount Bethel, PA.

Strategic investors accounted for 93% of deals greater than $50 million announced during the fourth quarter, with financial investor activity carrying out the remaining 7% of deals.

"Private equity players have been focusing on regions with tightening supply, specifically Texas, for opportunities in the generation side of the business and to expand their power and utilities portfolio," said Rob McCeney, PwC’s U.S. energy and infrastructure deals partner. "The markets also remain interested in the outcome of hybrid merchant generation businesses, where there remains the potential for additional assets to come to market."

In its Oil & Gas M&A analysis, which was also released Tuesday, PwC found that dealmakers in late 2013 mostly were drawn to the Eagle Ford Shale in South Texas, where five M&A led to $6.5 billion total in transactions, compared to the Marcellus Shale, where four captured $1.5 billion. The Niobrara formation's two transactions were valued at $1.2 billion, while two in the Utica Shale contributed $263 million.

Eagle Ford deal volumes were skewed by one mega deal, which also was the biggest of the year: Devon Energy Corp.'s $6 billion purchase of privately held GeoSouthern Energy, a South Texas heavyweight (see Daily GPI, Nov. 20, 2013).

Twenty-seven U.S. oil and gas transactions in 4Q2013 were related to unconventional plays, contributing a total of $23.8 billion -- a 338% increase from 3Q2013. For the year, 79 unconventional transactions together were valued at $53.2 billion; there were two more shale-related deals than in 2012, when total values were $51.7 billion.

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