2006 was another record-breaking year in the electricity and gas utilities sector. Total deal values shot through the record level set in 2005 to reach a dizzying US$298.8bn. This is nearly seven times the US$43bn level of transactions recorded in the sector only three years earlier in 2003.
The rise is all the more astonishing as it comes in a year when deal activity from corporate US utility players plummeted. The sharp downturn in North America came as companies took stock of aggressive regulatory stances from some state regulators during a US midterm election year that coincided with the ending of rate freezes and reaction to the repeal of the Public Utilities Holding Company Act. North American electricity deal values by bidder fell 64% to US$20.7bn, not far above the US$16.7bn level of 2003.
The picture in Europe and the Asia Pacific region was very different. Both regions recorded record levels of power deal activities as utility companies continued to strive for ‘super regional’ scale. Deal activity in Europe was given extra momentum by the countdown to the July 2007 implementation of full retail market liberalisation.
This report examines the rationale behind the overall trends and the key individual deals. We also highlight, in a series of deal dialogues throughout the report, some of the critical issues for companies engaging in deal activity within the sector drawing on our global experience as an adviser to players in major deals throughout the sector in all key power and gas markets.
Looking to the future, the regulatory environment will play a key role in determining the course of deal activity. Companies entering into big deals need to be ready more than ever for the long haul. However, the underpinning momentum in the sector remains strong and this is likely to create continued buoyancy in the period ahead.
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