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Global Gas Merger and Acquisition Activity Plummets in ’03
The number of gas and power mergers and acquisitions across the globe fell sharply in 2003 to a historical low, but gas deals fared the worst, plummeting 91% in terms of total value, according to an annual report released Monday in London by PricewaterhouseCoopers.
Actual deal numbers fell marginally from 424 in 2002 to 398, but values fell significantly from US$84.9 billion to US$43 billion, the firm said in its report, titled “Power Deals.” However, a substantial 69% of the value of deals made in 2003 was achieved in the second half of the year, signaling renewed hopes that the market is finally over the worst, the firm said.
“2003 was a poor year for deals in the global electricity and gas markets,” said Mark Hughes, PricewaterhouseCoopers European leader of utilities corporate finance and recovery. “In the second half of the year, a recovery, spurred by electricity deals, saw a rise in value from US$13.4 billion to US$29.6 billion. There was a noticeable absence in gas deals in 2003 and deal values toppled a massive 91% on 2002 figures.”
The top ten deals last year were all in electricity, providing a total deal value of US$18.4 billion. Aggregate gas deal values dropped dramatically from US$36.3 billion in 2002 to just US$3.3 billion in 2003.
The largest transaction in 2003 was the $2.9 billion purchase of UniSource by a private investment group that included Kholberg Kravis Roberts & Co., J. P. Morgan Partners LLC, and Wachovia Capital Partners. UniSource is the parent company of Arizona electric utility Tucson Electric Power (TEP). The second largest was the $2.5 billion purchase of ENEL Spa of Italy by Morgan Stanley. And the third largest was the $2.4 billion purchase of Cogentrix by Goldman Sachs.
European deal activity also slumped in 2003. With much of the European utilities market already consolidated, there proved little opportunity for the mega deals that characterised much of 2001 and 2002. The total value of European transactions fell from US$65.8 billion in 2002 to US$17 billion, leaving Europe with a 40% share of the total deals value, compared to 78% in the previous year. Deal numbers fell 21% from 200 to 158.
Helped by the collapse in deal values in Europe, North America increased its share of global deals from 13% to 42% of total value. Acquisitions in North America, mainly by U.S. investors, totaled US$18.2 billion in 2003, up from US$11 billion. Financial investors drove much of this recovery, though there was evidence of renewed European interest.
“Problems in the United States have been one of the main drivers of declining activity over the last two years, so the upturn in activity there is encouraging,” said Richard Gledhill, PricewaterhouseCoopers global leader of energy corporate finance and recovery. “The weak dollar is likely to reinforce the focus on domestic opportunities there, but it should also encourage more cross-border interest from Europe.”
The prime rationale for M&A activity in 2003 was consolidation through horizontal and vertical integration, which accounted for over 65% of the total number of transactions.
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