Institutional investors to drive utilities M&A in 2013 - PwC

LONDON Wed Jan 30, 2013 9:14am GMT

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LONDON (Reuters) - Institutional investors like pension and sovereign wealth funds are likely to spend more money in the utilities sector in 2013, drawn by the predictable regulation and long-term returns the sector offers, consultancy PwC said on Tuesday.

Utilities in Europe have been hit by a recession-driven slump in energy demand but divestment programmes at major companies produced a number of high-profile merger and acquisition deals last year which have caught the attention of institutional investors.

The sale of German utility E.ON's (EONGn.DE) gas network Open Grid Europe at 3.2 billion euros last year attracted strong interest from institutional investors across the globe.

Institutional investors pumped $44.3 billion globally into utility sector deals last year, nearly 50 percent above 2011 levels and accounting for 29 percent of the $154 billion spent around the world, PwC data showed in a report published on Tuesday.

"We anticipate that institutional investor interest in the sector, such as from pension funds, insurance funds, mutual funds, sovereign wealth funds and banks, will continue to strengthen," PwC analysts said.

"We think the high premiums evident on recent deals will tempt existing asset owners to look closely at their options," they added.

Last year total deal value in the sector dropped 27 percent compared with 2011 to $154 billion, while the number of deals contracted by 15 percent to 1,014, PwC said.

Last year's biggest deal was Japan's $12.5 billion takeover of Tokyo Electric Power Co Inc (9501.T) , the utility hit by the consequences of the Fukushima nuclear crisis.

The U.S. shale gas revolution has unleashed a wave of transactions in the gas sector, with an 18 percent increase in the number of deals last year to 156 at $49.1 billion.

"We expect to see a number of moves, particularly from private equity buyers, for currently cheap assets that could gain from a longer term upward gas price trend," PwC said.

(Reporting by Karolin Schaps)

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