Investors Continue to Prize Power Company Assets

Acquistions up this past quarter

Ken Silverstein | Nov 13, 2013


The North American utility industry is gathering a head of steam, at least as far as mergers and acquisitions go. That’s according to PriceWaterHouseCoopers, which says that in the third quarter of 2013 that such combinations accelerated.

What does it all mean? Utilities have typically been a good catch for anyone seeking a low-risk investment accompanied by stable returns. With their often regulated assets and secure customer bases, power companies enable those opportunities. What makes the third quarter especially interesting, the global consultancy says, is that renewable deals were among that grouping.

“We saw a notable rise in deal activity in the third quarter and expect that activity to continue in future quarters as the hunt for yield and rebalancing of portfolios continues,” says Jeremy Fago, PwC’s U.S. power and utilities deals leader. “Renewables continue to attract investors seeking stable, predictable cash flows and we expect the industry to continue its consolidation as thirst for yield and uncertainty around incentives remains.”

The firms says that there were 12 power and utilities transactions greater than $50 million in the third quarter of this year. That is compared to seven deals in the previous quarter and eight such transactions in the third quarter of 2012. 

The average deal size, however, has fallen sharply to $384 million from $1.8 billion during the previous quarter. However, when excluding the MidAmerican acquisition of NV Energy from the prior quarter results, the average deal value decreases to approximately $350 million for the prior quarter, as compared to $384 million this quarter, the consultancy adds.

The biggest deals: Tenaska Capital Management bid $902 million for U.S. Power Generating Co.; NorthWestern Corp. has announced it would acquire 11 hydroelectric power plants now owned by PPL Montana for $900 million in cash.

And, Direct Energy Business, the Pittsburgh-based subsidiary of Centrica, has agreed to acquire Hess Corp's Energy Marketing business for $731 million. The deal will add a large gas supply business to Direct Energy on the East Coast; Emera Inc. has agreed to purchase three gas-fired electricity generating facilities from Capital Power Corporation: Bridgeport Energy (Connecticut), Tiverton Power (Rhode Island), and Rumford Power (Maine). Price: $541 million.

Smart Buys

The largest renewable transaction this past quarter: Canadian Solar Solutions has agreed with Concord Green Energy to sell five utility-scale solar power plants to Concord for $279 million.

“While there has been continued interest from private equity for quality assets with stable cash flows and/or attractive value potential, we saw this investor group land more deals in the third quarter of 2013 compared to the previous quarter, and we expect this interest to continue going forward,” adds Rob McCeney, PwC U.S. energy & infrastructure deals partner.

Around three-quarters of the deals were “strategic,” or where the investor sought a specific owned asset that has been owned and controlled by another. That is down from 100 percent in the previous three months. Those acquisitions are compared to outright purchases -- the ones that make the big headlines, such as one of the most recent: Duke Energy’s buyout of Progress Energy in 2012. 

PwC references Warren Buffet’s Berkshire Hathaway and its subsidiary MidAmerican Energy, which said over the summer that it will pay $5.6 billion for NV Energy. Buffet’s goal is to pick up prized assets at bargain rates, while holding and investing in them to improve performance. Specifically, NV Energy is regulated and sells into the California market where building newer facilities is tough going.

For now, electric utilities are trying to recover ground that they had lost during the recessionary years. Most are trying to pare down their debt and to enhance their performance and are thus unable to make wholesale purchases of other companies. As their economic prospects improve, though, they will continue to search out strategic assets that would fit nicely into portfolios.

Twitter: @Ken_Silverstein

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Utility Consolidation vs Free Market Pricing

Correct me if I'm wrong, but I see what is happening as the Energy marketplace is being controlled by fewer Large Providers, which will only result in less competition between them and ever higher rates for ratepayers!

Also, I'd love to see a chart showing which type of energy generation was being sold because that chrt might indicate the future trend toward renewables as the Energy industry begins to realign itself with the current demand for cleaner greener energy.

Ken here

Hi, on the question of the types of assets that are selling: There is a link to the PwC study and it answers those questions. You need to fill out a form before they give you access. On the thought related to bigger companies buying up others and thereby creating more market power: Previous wholesale mergers were declined for that reason and off the top of my head, they involved Exelon, PSEG and FPL, although in the recent past, bigger ones involving exelon as well as the Duke/Progress were allowed to go through. It was the states that were the most critical of these deals. The commissioners typically extract concessions, such as rate deals or the forced sale of assets, before they allow these deals to go through.  This story focuses more strategic assets, which are far less controversial.

Thanks for the comment Update!

It's rare that someone that writes an article will monitor comments about the article and then post replies, this is one of many things that sets and you apart...