M&A activity in power and utilities sector hits four-year Q1 high

BY Fraser Tennant

Mergers and acquisitions (M&A) activity within the power and utilities (P&U) sector propelled Q1 deal value and volumes to a four-year high, according to a new EY report.

The first quarter data showcased in EY’s ‘Power transactions and trends 2015’ reveals that total deal value reached US$29.7bn, deal value in Europe (the leading Q1 M&A destination) was US$11.4bn, and the total Q1 deal volume was 101 – all pointers to yet another strong year for M&A in the P&U sector.

The demonstrably burgeoning level of M&A activity seen across the globe is partly due, says EY, to energy reforms and unbundling (ERU) – an emerging trend involving governments opening up their energy sectors to competition. Indeed, ERU has recently been introduced in China and Japan, with both territories initiating reforms designed to break the dominance of state-owned monopolies.   

“We expect to see more deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," confirms Matt Rennie, EY’s global TAS power & utilities leader. “Conventional P&U companies are expected to focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

The EY report also states that: (i) during Q1, US utilities turned to consolidation to meet the challenges of a stringent regulatory environment, weak earnings growth and declining returns on equity; (ii) in Europe, utilities continued to sell assets – mostly to financial investors – as they prioritised core business; (iii) Asia-Pacific deal activity was dominated by Chinese utilities, which are looking to consolidate to secure greater market share in the domestic market; and (iv) in Africa, a lack of local funding sources created opportunities for foreign investors to take a prominent role in financing power projects, as governments made moves to ease risks for investors.

“As the year progresses, we expect to see a rise in the number of deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," continues Mr Rennie. “Given a weak growth outlook in key regions, conventional P&U companies will focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

Report: Q1 2015 Power transactions and trends

Private equity investments and divestments hit five year high in Europe

BY Fraser Tennant

Private equity investment in European companies during 2014 reached its highest level for five years, according to new figures released this week by the European Private Equity & Venture Capital Association (EVCA).

The figures highlighting the number of companies to have received buyout, growth and venture capital investments last year are showcased in the EVCA’s ‘2014 European Private Equity Activity report’ – widely considered to be the most comprehensive source of private equity fundraising, investment and divestment data for Europe (pertaining to more than 1200 European private equity firms).

The report’s core data shows that in 2014: (i) European private equity investment rose 14 percent to €41.5bn; (ii) over 5500 European companies received private equity investment, 80 percent of which were SMEs; (iii) divestments rose 10 percent to a record €37.8bn, with 2400 companies exiting; and (iv) private equity fundraising reached €44.6bn, the second-highest total in five years.

“Private equity and venture capital play an ever increasing role in Europe’s capital markets," said EVCA chief executive Dörte Höppner. “In 2014, we saw a clear pickup of investment and divestment activity across Europe, supported by robust fundraising. Against the backdrop of extremely high liquidity in financial markets, our numbers are proof of a strong and stable private equity industry which displays no signs of overheating; the industry will continue to play a central role in the European economy.”

The EVCA report also indicates that initial public offerings (IPOs) played a significant role in divestment activity. Exits via public markets more than doubled from 23 to 51 companies, while the amount divested at cost increased by more than 50 percent to €3.3bn. Overall, says the report, the most prominent exit routes by amount were by trade sale and sale to another private equity firm.

“Record divestment activity in 2014 reflects the quality of businesses being created by European private equity," concludes Ms Höppner. “While the rise in IPO activity is welcome and demonstrates investor appetite for new share offerings, we must do more to improve public market access for SMEs. The EVCA has been working with fellow European associations via the IPO Task Force to promote a healthier IPO market that benefits companies and investors alike.”

Further EVCA conclusions include confirmation that European private equity continued to attract significant capital from around the globe in 2014, with institutional investors accounting for 40 percent of the funds raised.

Report: 2014 European Private Equity Activity - Statistics on Fundraising, Investments & Divestments

M&A likely in oil & gas space

BY Richard Summerfield               

Over half of the companies operating in the oil & gas sector are contemplating acquisitions in the coming 12 months, according to a new report from EY.

The report – EY’s 'Oil and Gas Capital Confidence Barometer' – which surveyed 112 oil & gas company executives, notes that the industry is in the process of rebounding from the adverse effects of the recent sharp decline in oil prices. As a result, 56 percent of surveyed firms believe they will “actively pursue acquisitions” over the next 12 months – more than double the number of executives who responded similarly in October 2014.

"For the first time in five years, more than half our respondents are planning acquisitions in the next 12 months, as deal pipelines continue to expand," said EY global vice chair for transaction advisory services Pip McCrostie. However, despite the recent acquisition of BG Group by Royal Dutch Shell, the main focus for acquiring companies will not be big ticket mega-mergers. Indeed, most acquiring companies – 70 percent of respondents – are likely to focus on mid-market transactions, with the majority of deals expected to be pitched at around $250m. A further 24 percent of surveyed firms are planning acquisitions of between $251m and $1bn, while just 4 percent of companies are believed to be considering deals worth in excess of $1bn.

The survey was conducted in February and March when Brent crude price averaged below $60 per barrel; accordingly, many of those executives surveyed felt that an improvement in the oil & gas space was inevitable. Ninety-nine percent of respondents felt that the overall deal market would improve or remain stable over the next 12 months. A further 97 percent expressed similar confidence in the global economy.

Despite the resurgence of confidence in the oil & gas sector’s deal environment, residual macroeconomic concerns may still curtail some M&A activity. Increasing volatility in commodities and currencies, as well as persistent disruptive geopolitical influences, cast a potential shadow over future deal activity.  In order to mitigate these risks, firms in the oil & gas space will attempt to cut costs and achieve synergies while continuing to look for opportunistic acquisitions.

Report: Oil and Gas Capital Confidence Barometer

Q1 M&A activity up – Pitchbook

BY Richard Summerfield

2014 was a significant year for M&A activity. As the global economy shrugged off the stymieing effects of the previous decade's financial crisis, M&A returned to the top of the agenda in many corporate boardrooms. Accordingly, 2014 saw a considerable upswing in both deal value and volume.

As 2015 unfolds, it would appear that the substantial momentum witnessed last year has continued into the first quarter of 2015, as noted in Pitchbook's 2Q 2015 M&A Report

According to the report, M&A activity in Europe and the US in the first quarter of 2015 performed admirably, recording an 8 percent increase in deal flow and a 12 percent increase in aggregate deal value on a quarterly basis. The combined value of completed Q4 2014 and Q1 2015 deals approached $1 trillion. As a result of the uptick in M&A activity over the last year and a quarter, there is considerable optimism in boardrooms globally.

In Q1, 4220 deals were completed for a value of $492bn, a 12 percent increase over a strong Q4 2014 and a year on year leap of 74 percent. Throughout Q1, the healthcare sector contributed over $200bn worth of activity to the quarter’s total, accounting for 41 percent of all activity in the period.

While big ticket M&A transactions returned to the fore in 2014, many of the 2015 deals announced to date can be classified as ‘mega mergers’. According to Pitchbook’s data the number of Q1 deals recorded in excess of $5bn has already more than equalled the total of the first three quarters of 2014. As such, mega mergers are expected to remain a key feature of M&A activity this year. Acatvis’ $70.5bn acquisition of rival firm Allergan was one of the most notable deals executed in Q1, and there is considerable expectation that deals of that size might soon become the rule, not the exception.

Report: 2Q 2015 M&A Report

2015 EMEA private equity deal count down but capital investment up

BY Fraser Tennant

Q1 2015 saw a 34 percent increase in the capital invested in the Europe, Middle East and Africa (EMEA) private equity market, according to S&P Capital IQ’s new EMEA Private Equity Market Snapshot.

The report's headline is that EMEA as a global private equity investment destination, although down in Q1 2015 in terms of deal count compared to Q1 2014, was up in aggregate transaction values - €41bn deployed to EMEA located target companies this year across 1020 new deals, compared to €30.6bn last year across 1205 deals.

“EMEA attracted 494 new deals putting €2.1bn to work. This represented a 10 percent increase in capital invested but a 15 percent reduction in deal count from 579 new deals last year", notes the report.

 “The data suggests that the venture capital world is increasingly concentrating on a tighter set of potential companies but deploying more capital across individual deals in order to maximise the growth potential of the selected few.”

The report also found that, on the exit side, Q1 2015 recorded 330 divestments for global private equity firms realising €42.9bn, an increase of 17 percent on Q1 2014’s €36.8bn across 396 exits.

And when considering the wider global political discourse, the report examines investments made by global private equity firms into EMEA-headquartered target companies as opposed to tax haven headquartered firms, highlighting that most of the activity originated by the latter in the past 10 years benefited Northern and Western Europe.

“Investments in the financial sector, specifically real estate operating companies, have seen the biggest quarter-on-quarter increase in terms of aggregate capital deployed with €15bn invested in Q1 2015 compared to €5.6bn in Q1 2014”, says the report.

“A significant proportion of the €15bn was explained by the largest deal of Q1 2015 which saw Qatar Holding and Brookfield Property Partners acquire the remaining 71.4 percent of Songbird Estates PLC, the parent company of Canary Wharf Group, for €8.7bn.”

The report also considers the current status of the oil & gas sector, noting that despite the overall health of EMEA private equity activity seen so far in 2015, it remains to be seen whether recent investment in the North Sea will be enough to kick start significant dealmaking activity.

Report: EMEA Private Equity: Market Snapshot