Utilities protect their balance sheets.
Joe Fontana is partner, Global Power & Utilities Transaction Leader, Ernst & Young. Email him: firstname.lastname@example.org. This article reflects his views and not necessarily those of Ernst & Young.
What a difference a year can make. Since September 2008, M&A has slowed dramatically as both buyers and sellers play a waiting game. So who will blink first?
In the current state of the market, the recession is upon us, equilibrium has yet to be restored to the credit markets and companies across all sectors are engaging in cost cutting while struggling with continued uncertainty. And while utilities with strong balance sheets and credit ratings haven’t been as badly affected as the rest of the economy, many have experienced an uncharacteristic scramble to protect their liquidity.
In terms of volume, this is a quiet market. While completed deals in the third quarter of 2008 (Q3 08) came to a total value of $5.87 billion, in Q4 08 this halved to just $2.44 billion. During the first quarter of 2009, domestic M&A activity declined even further; the total deal value was just $1.03 billion.
Also, the number of deals has been affected. While in Q4 08, there were 14 completed deals; in Q1 2009 there were only eight M&A transactions. So, there has been both a significant decline in deal value and volume in recent months.