Following a record-setting year in 2005, global mergers and acquisition (M&A) activity for natural gas and electricity utilities is expected to rise even further this year, according to a report by PricewaterhouseCoopers (PWC), “Power Deals,” which charts M&A activity, noting that the era of the “super-regional utilities” has begun, particularly in Europe.

Last year there were new highs reached for number of deals, their total value, a single deal’s value, and the number of deals greater than $10 billion, the PWC report concluded, tallying 527 M&A deals worldwide, worth collectively $196 billion and five deals each topping the $10 billion level. “This far outran 2004’s high level of activity,” the report said. While the total value of electricity deals jumped 80%, the total value of gas deals decreased 20%.

For North America, power deal activity stayed high last year, accounting for one-third of all power M&A worldwide, the PWC report said. North American deals rose 5.8%, totaling $62 billion. “Most of the activity was in electricity, although the total value of North American gas assets targeted in domestic deals more than doubled up from $3.1 billion to $6.4 billion.”

“With Wall Street expecting earnings-per-share growth of 5%-6%, but organic growth expectations in most territories down around 2%, it is not surprising that utility companies were hard on the acquisition trail, having squeezed out most of their organic growth potential,” said PWC’s John McConomy, U.S. power and utilities transaction services leader.

“Looking ahead, the power sector remains very fragmented with huge scope for consolidations,” McConomy said. “Despite the repeal of the Public Utility Holding Company Act (PUHCA), however, regulatory developments will continue to hold the key to the pace of future moves in the U.S. market.”

Noting that last year’s momentum is already “gaining speed” this year, Manfred Wiegand, PricewaterhouseCoopers’ global utilities leader, said a new “blockbuster era” of deals has begun. “Companies are consolidating and extending their regional footprints to attain nonorganic growth in a tight sector facing high fuel prices and security of supply concerns,” Wiegand said. “We are also seeing greater involvement of financial players in the market with the rise of infrastructure funds creating a new asset class.”

European M&A activity is leading the charge, according to the report, as companies hurry to position themselves for customer choice in the EU community of nations when liberalized rules go into effect next year. Globally overall, the total deals were up by 68 last year from 459 in 2004, and the collective value jumped $63 billion from the $123 billion level in 2004, the report said. In all, five mega-deals last year totaled $78 billion.

“Increased gas prices are leading to a great focus on nuclear, clean coal and renewable assets,” PWC’s report said. “Security and supply concerns are reinforcing the drive to diversify and bulk up on assets, particularly in Europe. In all areas, gas and carbon dioxide prices will play an important role in determining deal strategies.”

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