M&A activity tipped to soar this year

Merger and acquisition activity in the global renewables sector is expected to pick up in 2014 after the value of deals fell by 10% last year as policy uncertainty hit investor confidence, PwC says.

The value of worldwide power and renewables deals fell to $141bn in 2013 from a year earlier due to changes to government policies and constrained finance, according to a report by the global audit firm.

However, it says a return of very large mergers in the US power sector this year could help drive the value of deals in power and renewables.

“After a year in which considerable sector uncertainty has affected deals, we anticipate greater confidence during 2014,” says Norbert Schwieters, global power and utilities leader at PwC.

“Participation in the sector continues to widen, with the attractions of contracted or regulated returns pulling in a wide range of buyers.”

The total value of deals in the gas sector dropped 38% to $29bn last year. In Europe in particular, power generation from natural gas no longer makes economic sense for utilities, and many closed plants last year.

The total value of transactions in the electricity sector was down 2% at $90bn. However, the value of renewables deals rose 25% year-on-year to nearly $22bn.

“The upturn in deals for renewable power targets comes with the sector seeing a steady flow of deals as power utility companies seek to capitalise on renewable economics,” the report says.

“The sector is also attractive to financial buyers because of the predictable returns that flow from completed projects with long-term contracts or regulated returns.”

Chinese power companies, Japanese trading houses and Korean companies were behind the largest deals last year, completing transactions in the Asia Pacific region, the Americas, Europe and Africa.

“Africa is a growing focal point for power deals as well as capital project investment... The region needs 250GW of new generation by 2030, much of which will need to come through commitments from and partnerships with other continents,” PwC said.

International law firm Hogan Lovells says its own research into the energy sector shows that this uptick in M&A activity in the energy sector will be driven by distressed opportunities, consolidation and the need for incumbents to increase market share in existing markets.

“The biggest challenge facing companies in the renewables space is the challenge to green subsidies across the world... We see developments of large-scale offshore wind projects in countries like the UK, Germany, France, the Netherlands and Belgium as the most active part of the renewables market in Europe in the foreseeable future,”says John Deacond, partner at Hogan Lovells.

“Internationally, we expect to see significant new markets opening up, such as Turkey, where there is a big need for power, and Saudi Arabia. There are also ongoing plans to develop substantial solar projects in North Africa and transport the power to Western Europe.

“From an M&A perspective, there is a growing activity in the secondary renewables space as developers seek to liquidate assets where they have taken the development risk and are ready to exit."