Canadian power and utilities companies are showing an appetite for merger and acquisitions to grow and diversify, but are facing increased uncertainty when it comes to pricing the deals due to changing regulatory structures, says a new Ernst & Young report.
“Regulatory models are changing in many power and utilities jurisdictions,” says Gerard McInnis, partner in Ernst & Young’s Power & Utilities practice. “And the peculiarities of the rate structures and market characteristics within each of these jurisdictions — in Canada, the U.S. and internationally — are only [exacerbating] the uncertainty that goes along with those changes.”
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In this environment, power and utilities companies looking to acquire in 2013 need to factor in sufficient time to carefully consider deal values and likely returns, he adds.
A recent Ernst & Young report, Power transactions and trends: global power and utilities mergers and acquisitions 2012 review, 2013 outlook, predicts that competition in Canada will increase in 2013, providing impetus for greenfield and brownfield development. However, high-quality rate base or contracted assets will remain in demand, with an emphasis on greater geographic diversification inside North America and internationally.
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“We’re seeing Canadian power and utilities companies expand geographically and build out their renewable assets through acquisitions,” says McInnis. “As they expand their footprint beyond familiar territory, they need to do due diligence to understand the complexities of new regions and new markets.”
M&A values within the global power and utility sector during 2012 declined by 16.8% compared to 2011. “But with the right deal-making conditions in 2013, it’s an exciting time for Canadian power and utilities as they continue to branch out and diversify,” asserts McInnis.