M&A Values Increased In The Power Industry In 2011

Tuesday 13 March 2012, Amsterdam

The “Power Annual Deals Analysis 2012” report is an essential source of data and trend analysis on the mergers and acquisitions (M&A) and financings in the power market. The report provides detailed information on mergers and acquisitions (M&A), equity/debt offerings, private equity and venture capital (PE/VC) and partnership transactions registered in the power industry in 2011. The report provides detailed comparative data on the number of deals and their value in the past five years, categorized into deal types, segments and geographies. Additionally, the report discloses information on the top PE/VC and advisory firms in the power industry.


M&A Values Increased In The Power Industry In 2011

M&As, which include changes in the ownership and control of companies (GlobalData does not consider this value as a new investment in the market) in the power industry, registered an increase of 19% in deal values with $144.1 billion in 2011, as compared to $121.3 billion in 2010, owing to increasing demand for electricity and boosted by investors’ confidence. Duke Energy and Progress Energy’s merger valued at $25.9 billion; Energy Transfer Equity’s agreement to acquire Southern Union for $9.4 billion; Exelon’s agreement to merge with Constellation Energy Group for $7.9 billion; and Texas Instruments’s agreement to acquire National Semiconductor for $6.5 billion were some of the major deals recorded in 2011. The number of M&A deals decreased from 551 in 2010 to 491 in 2011, signifying a decrease of 11% over 2010.

The number of M&A deals was high in the capital intensive solar and wind energy markets, with companies making huge investments to build their product portfolio. In total, 112 and 87 deals were recorded in the solar and wind energy market respectively in 2011. In value terms, utilities networks segment dominated the M&A activity with $82.2 billion in 2011, followed by the hydro sector with $47.5 billion.

Region wise, North America remained the most attractive destination for M&As in the power industry in 2011. The region registered 224 deals worth $73.4 billion in 2011, as compared to 243 deals worth $39.6 billion in 2010.

According to Siddhartha Raina an analyst “there was an increase in the M&A deal value due to some high value deals in 2011 as compared to 2010, nonetheless, the numbers decreased from 551 in 2010 to 491 in 2011. Although, over all deal numbers decreased in 2011 but high M&A activity prevailed in the capital intensive solar and wind energy markets. Utility networks segment gained maximum value in terms of revenues earned in 2011. North America dominated the M&A activity globally in 2011with revenues of $73.4 billion which are almost double in value as compared to $39.6 billion in 2010”.


New Investments In The Power Industry Declined 40% In 2011

Investments in power companies, including new investments through equity/debt and financing by PE/VC firms, recorded a decrease of 40% from $341.7 billion in 2010 to $206.1 billion in 2011. The number of deals also decreased from 1,181 deals in 2010 to 987 deals in 2011.

Overall, the fossil fuels market attracted the majority of new investments in 2011, which accounted for around 51% of the total new investment of $206.1 billion in the power industry. North America was the most active region, attracting investments worth $96.1 billion through 607 deals in 2011, due to the rising demand for electric services to meet the needs of growing population in the region. Europe, the major hub for renewable energy, recorded a decrease in investments from $94.8 billion in 2010 to $67.5 billion in 2011. Asia-Pacific reflected a similar trend with investments falling from $41.2 billion in 2010 to $25.5 billion in 2011.

According to Siddhartha Raina “Investments in power sector reduced by 40% in value terms during 2011 which also impacted the deal numbers bringing them down from 1,181 deals to 987 deals in 2010. Reduced investment activity due to lack of funds has led to uncertainty in new investment deals. The new investments in the power sector were predominately driven by the fossil fuel sector. Most of the new investments happened in North America due to the rising demand of electric services to meet the needs of growing population in the region.”


Asset Financing Declined In The Power Market In 2011

Asset financing, including project financing, self funded, tax equity, lease and bond financing and bridge loans for new building projects, acquisitions, and the refinancing of assets, registered a decrease of 31% in the number of deals and 44% in deal value with 2,207 deals worth $488.1 billion in 2011, as compared to 3,179 deals worth $869.8 billion in 2010. However, the number of asset financing deals increased at a CAGR of 4.2% from 2007 to 2011.

The fossil fuel sector dominated the asset financing market, with around 39% of total new investments in projects in 2011. Some of the major deals in 2011 include PT PLN’s agreement to build a $6.9 billion gas-fired power portfolio in Java, Indonesia; CEA’s agreement to invest $5.4 billion in Junagadh coal power project in Gujarat, India; NTPC’s agreement to invest $5 billion for developing a power project in Andhra Pradesh.

Asset finance, in particular self-funded projects, which include projects that have been financed through the company’s own finances either in cash or stock, registered a significant decrease in the number of deals and deal values in 2011. The market reported 1,179 deals worth $350.1 billion in 2011, as compared to 1,419 deals worth $703.4 billion in 2010, representing a decrease of 17% in the number of deals and 50% in deal value. The fossil fuel sector had a significant presence with a total of $146.7 billion self-funding in projects in 2011. The majority of companies in Asia-Pacific focused on investing in power projects, primarily fossil fuels. The region reported $169 billion investments in 2011, representing 48% of the total self-funding investments in 2011.

According to Siddhartha Raina “The asset financing decreased globally by 44% in value terms during 2011 as compared to 2010, due to this the deal numbers also went down by 31% as compared to 2010. The fossil fuel sector dominated the asset financing and accounted for 39% of the deals in 2011. Geographically Asia Pacific noted the largest project financing activity in 2011.”


Capital Raising Through The Issuance Of Equity And Debt Securities Decreased In 2011

Global debt offerings, including public and private debt placements, by power companies registered a decrease in the number of deals and deal value with 345 deals worth $159.7 billion in 2011, as compared to 486 deals worth $206.5 billion in 2010, reflecting a decrease of 29% in the number of deals and 23% in deal value. Public debt offerings registered a decrease in the number of deals and deal value with 209 deals worth $106.5 billion in 2011, as compared to 328 deals worth $156.2 billion in 2010. Private debt placements, which mean issuing debt instruments to institutional investors, decreased from 158 deals in 2010 to 136 deals in 2011. However, deal values increased 6% from $50.3 billion in 2010 to $53.2 billion in 2011.

Global equity offerings, including initial public offerings (IPOs), secondary offerings, and private investment in public equities (PIPEs), registered a decrease of 19% in the number of deals and a substantial decrease of 77% in deal value in 2011. The equity capital market reported 284 deals worth $29 billion in 2011, as compared to 351 deals worth $124.7 billion in 2010. Follow-on/secondary offerings accounted for the majority of the deal value with $18.4 billion, out of the total $29 billion recorded in 2011. The majority of the equity capital was raised by wind companies, with 63 deals worth $14 billion in 2011, followed by hydro companies with 34 deals worth $11.1 billion.

According to Siddhartha Raina “Capital raising, including equity and debt offerings, registered a decrease in the number of deals and deal value, with 345 deals worth $159.7billion as debt offerings and 284 deals worth $289 billion as equity offerings in 2011, as compared to 486 deals worth $206.5 billion as debt offerings and 351 deals worth $124.7 billion as equity offerings in 2010. This represents a decrease of 29% in the number of deals and 23% in deal value for debt offerings along with a decrease of 19% in number of deals and a substantial decrease of 77% in deal value for equity offerings. Reduced investment activity and lack of funds impacted the global capital raising.”


Venture Capital Market Atrtracted Much Investment In 2011

Venture capital in the power industry registered an increase of 32% in deal value with $5 billion in 2011, as compared to $3.8 billion in 2010. The number of deals also registered an increase of 12% with 274 deals in 2011, as compared to 245 deals in 2010.

Technology-wise, solar energy market accounted for 36% of the total investments from VC firms, with $1.8 billion in 2011. BrightSource Energy’s financing of $324.1m, Stion’s financing of $130m, and Suniva’s financing of $94.3m were some of the major VC deals recorded in 2011.

Growth capital/expansion stage financing by power companies registered an increase in the number of deals and deal value, with 135 deals worth $3 billion in 2011, as compared to 89 deals worth $2.2 billion, representing an increase of 52% in the number of deals and 36% in deal values. Kleiner Perkins Caufield & Byers topped the VC ranking table, with 18 financing deals worth $688.7m during 2011. New Enterprise Associates stood second with nine deals worth $426.4m in 2011.

Besides, private equity investments recorded a significant increase in deal value with $12.5 billion in 2011, as compared to $6.7 billion in 2010. The wind energy market attracted the largest share of investment from PE investors with $7.3 billion in 2011, followed by hydro energy market with $5 billion. GE Energy Financial Services emerged as the top PE firm by providing financing to 24 power companies along with other investors, for a deal value of $1.4 billion in 2011. In second place, First Reserve Corporation financed six deals worth $519.4m in the same year.

According to Siddhartha Raina “Investments by PE/VC companies registered a substantial increase in 2011 as compared to 2010 due to some high value deals that were registered in 2011. Nevertheless, PE companies’ majority of investments in wind energy sector followed by hydro energy market reaffirm the growing confidence in the growth prospects of power companies in the near future. Investments by VC companies showed an increase of 32% in the deal value and an increase of 12% in deal numbers in 2011 also representing their growing confidence in the growth of power sector.”


Deal Values Decreased In All Regions In 2011

Europe, which is the major deal making region in the power industry, accounted for 26% of the total deal value with $220.5 billion in 2011, as compared to $283.4 billion in 2010. The decrease in investments could be primarily due to increasing challenges such as environmental concerns, including CO2 regulatory uncertainty faced by power companies in Europe. The number of deals also registered a decrease of 16% with 932 deals in 2011, as compared to 1,107 deals in 2010. North America also recorded a decrease in deal value with $233.5 billion in 2011, as compared to $345.4 billion in 2010. The number of deals also decreased 31% from 2,417 deals in 2010 to 1,677 deals in 2011. Credit availability and slower recovery from the financial crisis affected investments in Europe and North America regions in 2011.

Asia Pacific reported a decrease in the number of deals and deal value with 821 deals worth $270.7 billion in 2011, as compared to 1,246 deals worth $474.2 billion in 2010. The rest of the world (ROW), including South and Central America and the Middle East and Africa, registered a decrease of 15% in the number of deals and 50% in deal value with 377 deals worth $114.2 billion in 2011, as compared to 446 deals worth $229.8 billion in 2010.

According to Siddhartha Raina “All the regions including North America, Asia-Pacific, Europe and rest of the world registered decrease in investments in terms of total deal value as well as deal numbers. Europe, the main deal making region in global power industry, witnessed decreased investments primarily due to growing environmental concerns leading to uncertainty of regulations related to CO2 emission control. Overall, global investments have been affected due to reduced credit availability and slower recovery from financial crisis in the European and North American regions in 2011”.