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Not a bad year for gas and power

WORLDWIDE MERGERS and acquisitions (M&A) activity in the electricity and gas sectors was very resilient last year, despite sharp declines in corporate activity in most other sectors, claims a report by PricewaterhouseCoopers* (PWC). According to the report, M&A activity was more concentrated in the gas sector than in the electricity sector. In addition, there was an emphatic shift from cross-border (international) deals to domestic (in-country) deals.

The number of deals in the two sectors combined was down by only 3% on the year, while the total value of transactions (including debt) was down by 7%.

For M&A activity among utilities this year, PWC predicts a mixture of constraint, because of market conditions, and opportunism. The harsh capital-market conditions experienced throughout 2002 are likely to continue and, as we look at 2003, constraint will continue but opportunism will emerge, said Richard Gledhill, PWC's global leader for energy corporate finance. There is still room for some mega-deal surprises, but caution will prevail and there may be more sellers than willing buyers. 

PWC says vertical integration has continued to drive M&A among utilities. According to PWC, vertical integration accounted for 40% of all gas and electricity M&A activity in the top 40 deals.

Players are keen to minimise risks in a pressurised environment, said Mark Hughes, European Leader of PWC's utilities corporate finance and recovery department. Vertical integration is seen by many as a route to minimise the risk of stranded assets and can offer a buffer against over-reliance on contractual obligations. 

Last year, there was also a convergence of gas and electricity networks, adding momentum to the convergence between the two sectors already taking place at the production and retail ends of the value chain, the report says. Consolidation also remained a key driver and distress sales from US companies exiting other markets provided opportunities in a slow year for privatisation. 

Europe saw the most M&A activity, but in the it US continued to fall, the report says. Combining cross-border and domestic activity in gas and electricity, the North American share of total world M&A values fell from around a third in 2001 to 13% in 2002. Nine out of 10 of the top ten deals of the year were wholly European affairs (see Table 1).

Overall, M&A deal values in the gas sector rose by about 85%, from $19.617bn in 2001 to $36.261bn last year. That was down to a large increase in the value of domestic gas deals (in 2001, the total was $3.745bn from 56 deals; in 2002, the total was $31.999bn from 61 deals). The rise more than offset a sharp contraction in the total value of cross-border deals ($15.872bn from 38 transactions in 2001 to $4.263bn from 28 deals in 2002).

The electricity sector also showed a shift towards domestic activity and a substantial reduction in international deals. There were more domestic electricity deals in 2002 (205) than in 2001 (201), although their total value was down slightly year on year (from $30.055bn to $26.242bn).

Table 1: Top-10 cross-border and domestic electricity and gas deals, 2002



Value of





deal ($bn)



Lattice Group (UK)

National Grid Group (UK)




Innogy Holdings (UK)

RWE (Germany)




Ruhrgas (58.4%) (Germany)

E.On (Germany)




Italgas (56%) (Italy)

Eni (Italy)




Eurogen (Itay)

Edipower (Italy)




SPP (Slovakia)

GdF, Ruhrgas, Gazprom




TXU Europe Group (UK)

E.On (Germany)




Seeboard (UK)

EdF (France)




Sithe New England Holdings (US)

Elexon (YS)




Remu (Netherlands)

Eneco Energie (Netherlands)



For statistical purposes the smaller party in a merger is deemed the target *Combined value of

shares to be acquired (18.4% 20 May 2002, 40%, 03 Jul 2002)


Source: PWC (based on published transactions from Dealogic M&A Global database, 2002)

However, cross-border activity was sharply down on the year. The number of deals declined from 144 to 130, but their total value roughly halved, from $41.262bn in 2001 to $22.384bn in 2002.

*Power Deals / Mergers and acquisitions activity in the global gas and electricity markets  Annual Review 2002

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