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M&A Waiting Game

Utilities protect their balance sheets.

Fortnightly Magazine - August 2009

the fundamental issue of reliability. Can we count on the continued delivery of reliable electric energy? Delays to capital spending could have very significant repercussions, and hopefully, that is a worst-case scenario that will not materialize.

In this recession, there will be winners and losers. The winners will be those who can demonstrate operational excellence and whose executives have a laser focus on operating efficiently. The good news for the losers is that there will be someone to sell to; they may not get the price they want, but at least there are buyers out there.

Three things are needed for this market to improve: 1) credit markets need to continue their march toward stabilization; 2) realization that leverage must be reduced with value created through operational efficiencies; and 3) sellers’ expectations must continue coming down. Sellers seem to be holding onto values that were common one to two years ago but may be unrealistic in today’s marketplace, while buyers must accept that, at least for the near term, large amount of leverage will not be available.

Once these triggers are activated, PE and infrastructure funds will come off the sidelines to take advantage of attractive opportunities and start investing again, while corporations with strong balance sheets will seek out opportunities that may have been overpriced just a few years ago—an indication that the market is on the road to recovery.



1. Burr, Michael T., “ Desperately Seeking Liquidity ,” Public Utilities Fortnightly , February 2009.

2. World Energy Outlook , International Energy Agency, 2008.