Power transactions and trends

Global power and utilities mergers and acquisitions review

Q2 2013

Q2 2013 review and 2013 outlook

This EY report examines transactions and market trends in the global power and utilities sector in Q2 2013 and discusses the outlook for the remainder of the year.

Q2 2013 M&A up 30% in three months

Q2 2013 emerged as an exciting quarter for the global power and utilities (P&U) sector, with deal value rising 30% to US$33b, up from US$25.3b in Q1 2013. While volume remained flat, there were a handful of multi-billion-dollar transactions. The US$10b acquisition of NV Energy by MidAmerican Energy Holdings, and TECO Energys acquisition of New Mexico Gas Company for US$950m were marquee deals within the US this quarter. To drive broader economic growth, the US Federal Reserve has kept interest rates low, sending investors scrambling for higher yields. However, with the economy continuing to improve in 2013, the Federal Reserve is forecasting that it could begin to reduce its unprecedented bond buying program. The US valuation of P&U stocks rose in recent years as investors pursued higher yields amid a low interest rate environment; however, the recent pullback in utilities, which were trading at record valuation levels in April, could signal trouble on the horizon. On the other hand, shrinking valuations may potentially lower at least one hurdle to preventing large utility mergers. Europe continued to witness divestments by large utilities that are still restructuring asset portfolios. Regulatory uncertainty around renewables and environmental mandates around coal have made gas an important constituent of the regions generation mix. Utilities including EDF, Snam and Centrica undertook M&A to acquire strategic gas assets during the quarter. A notable move was Centricas acquisition of shale gas interests in the UK and Canada. Upcoming privatizations in Greece, Finland, New Zealand and Africa could result in billion-dollar-plus transactions in the year. Combined with expected robust activity in the US, this could make for a busy second half of 2013. Despite a decline in financial buyer activity this quarter, we see new hubs of financial investment emerging in areas such as Japan and the Middle East, which are looking to expand foreign investments.

Contents
Q2 2013 activity and outlook..... 2 Global snapshot......................... 4 Spotlight.................................... 6 UK water sector heats up Transaction volume and value.... 7 Global contacts.......................... 8

Data source and industryscope

Power transactions and trends quarterly is based on EY analysis of Mergermarket data from Q22011 Q2 2013. We use standard industrial classification codes to categorize deals. For this publication, we define power and utilities as companies in generation, transmission and distribution, renewable energy and other sub-sectors (including water). Deal activity and valuations may fluctuate slightly based on the date we accessed Mergermarkets database. If you would like to know about the methodology of this report, please contact Joseph Rodriquez.

Joseph Fontana Global Transactions Power & Utilities Leader

Joseph Rodriquez Global Power & Utilities Sector Resident, Transactions

Key findings, Q2 2013

US$10b NV Energy/MidAmerican deal headlines Q2 global P&U transaction activity; total M&A registers US$33.0b, up US$7.6b (30%) on previous quarter. Generation and integrated deals in the US underpinned strong growth in Americas M&A, which reached US$15.1b, up $9.6b on Q1 2013. Europe faces headwinds in an uncertain regulatory environment, particularly for generation. Absence of large transmission and distribution (T&D) divestments drags deal value down 46%. This is mainly a timing issue, as large T&D disposals are anticipated in various northern European jurisdictions later this, or early next, year. Asia-Pacific M&A increases 71% on prior quarter: Domestic Chinese M&A contributed 81% to the regions deal value, largely driven by the US$7b merger of two state-owned power and gas companies. Expansion into Australian T&D assets also remained a key focus for Chinese companies. UK water and waste utilities continue to attract significant investor interest, with water transaction valuations climbing to premiums of more than 30% on regulated asset base.

Section 1

Q2 2013 activity and outlook: mega deals spark global M&A activity
M&A rebounds on the back of a handful of big ticket deals as search for growth continues

US utilities continue to expand domestic presence

Despite the recent pullback in US power and utility stocks, stocks are still pricey as the sector is still trading well above its 10-year historical average: by the end of April 2013 stocks had tested uncharted waters, trading at 20.6x price-earnings (P/E). The recent market correction signals possible trouble ahead as the sector grapples with shifting market conditions. Q2 2013 saw US utilities searching for growth through M&A. MidAmerican Energy Holdings announced the acquisition of NV Energy, Inc., a Nevada-based public utility, for US$10.4b. TECO Energy signed an agreement to buy New Mexico Gas Company for US$950m. The healthy premium offered on both transactions (EBITDA multiple of 8.9x and 11x, respectively) reflects the growing preference for assets that have a proven revenue stream, favorable regulatory environment and revenue upside opportunities. A key development was the creation and subsequent US$400m1 IPO spin-off of NRG Yield, a unit to operate and acquire contracted generation assets, by NRG Energy. Given investors desire for stocks providing above-average yield supported by low-risk cash flows, we expect other utilities and IPPs may follow this lead; however, recent news that the Federal Reserve will likely taper its bond buying program may temper this. In other deals, NRG Energy acquired the 560 MW Gregory cogeneration plant in Texas for US$244m, and Dominion Energy announced the addition of Fairless Works Energy Center to its wholesale fleet, due to its positive spark spread and high capacity factor.

European shale gas interest grows

Major UK utilities are urging energy regulator Ofgem to support new gas-fired power generation in the region. UK-based Centrica entered into two significant shale gas deals in Q2 2013, acquiring a 25% stake in the Bowland shale exploration license held by Cuadrilla Resources the only company to have fracked for gas in the UK so far. Centrica also partnered with Qatar Petroleum to invest US$987m2 in Canada-based Suncor Energys gas and oil assets. With the British Government estimating over 1,300 trillion cubic ft of natural gas potential in the country, M&A activity in the gas segment may rise in coming months. Meanwhile, in France, President Hollande has ruled out exploration for shale gas in France during his presidency.

China remains most active investor in Asia-Pacific

Outbound Chinese investment continued in Q2 2013. Two key deals featured Chinas state-owned grid operator moving into the Australian power sector. Chinas largest utility has offered to acquire 60% of SPIAAs Jemena utility business for an unannounced amount as well as a 19.9% stake in SP AusNet from Singapore Power for US$803m. Industry sources3 indicate that the SPIAA Jemena deal could be worth about US$2.4b, putting the total value of the deal near US$3.2b. Lower profit margins in the domestic market (approximately 2%)4 are pushing the Chinese utility to explore developed markets, which offer a stable regulatory environment and relatively higher returns. Domestic deals contributed heavily to the countrys total deal value, led by the US$7b merger of power generator China Resources Power Holdings and China Resources Gas Group Limited, a gas distribution company. Both are state-owned enterprises. Global P&U transaction snapshot
US$1.2b US$0.0b US$0.7b US$1.1b US$4.2b US$1.2b US$1.2b US$1.2b US$1.2b US$11.5b US$1.7b US$7.3b

European utilities continue to face headwinds

Q2 2013 witnessed European asset divestments of approximately US$7.3b, compared to US$8.7b in Q1 2013 and US$12b in Q42012. Norways Statkraft AS sold a 4.2% equity stake in E.ON SE for US$1.5b to boost its capital for investments in hydro and wind power. Dong Energy divested a 25.67% stake in hydro power generation company Kraftgarden AB for US$769m, as part of itsstrategy to dispose of non-core businesses worth $1.7b in 20132014. In a move to obtain access to the strategic interconnection point in the European gas markets, a consortium of EDF, Snam and the Government of Singapore Investment Corporation acquired TIGF, the France-based provider of natural gas transportation and storage solutions, for US$3.1b. Gas is set to play an increasingly important role in Europes future energy mix, and we anticipate that utilities and financial investors will seek to position themselves for the new landscape.

Generation*

T&D Americas

Renewables Europe

Integrated, water and others

Asia-Pacic

*Excludes two deals in Africa with a combined value of US$426m in the generationsegment.

1 NRG Yield files for up to $400 million IPO, Reuters, www.reuters.com/article/2013/06/07/ us-nrgyield-ipo-idUSBRE9560KI20130607, 7 June 2013.

2 Centrica, Qatar Petroleum Buy Suncor Assets, The Wall Street Journal, http://online.wsj.com/ article/SB10001424127887324030704578423990527940454.html, 13 April 2013 3 State Grid Corp buys 60pc of Singapore Powers Australian assets, The Australian, www.theaustralian.com.au/business/mining-energy/state-grid-corp-buys-60pc-of-singaporepowers-australian-assets/story-e6frg9df-1226645099071, 17 May 2013. 4 China State Grid Buys Stake in SP AusNet for A$824 Million, Bloomberg, www.bloomberg. com/news/2013-05-17/china-state-grid-buys-19-9-stake-in-sp-ausnet-for-a-824-million.html, 17May 2013.

Power transactions and trends Q2 2013

Table 1. Global P&U deal activity by segment, Q1 2013Q2 2013

Deal volume Q2 2013 Total Generation T&D Renewables Integrated, water and others 86 10 17 37 22 Q1 2013 82 13 10 40 19 Global P&U M&A activity by segment $33.0 $2.4 $6.5 $3.6 $20.5 $25.3 $4.9 $10.5 $5.7 $4.2 Deal value (US$b) Q2 2013 Q1 2013

Figure 1. Global P&U deal value and volume, Q2 2011Q2 2013

150 120 90 60 40.3 30 0 24.4 21.7 26.0

47.9 19.0 27.6 25.3 33.0

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Total deal value (US$b) Deal volume

Source: EY analysis based on Mergermarket data

Source: EY analysis based on Mergermarket data

Table 2. Top five global P&U deals in Q2 2013

Announcement Target date 29 May 10 May NV Energy, Inc. China Resources Gas Group Limited Target Country/ territory US China Bidder Bidder Enterprise Transactional rationale Country/territory value (US$m) US Hong Kong 10,363 7,009 Segment

MidAmerican Energy Holdings Company China Resources Power Holdings

Expand geographical Integrated presence and customer base Achieve cost-and-revenue synergies by allocating resources and capex more effectively Access to strategic interconnection point in European gas markets; part of Totals divestment strategy Expansion in regulated European market to add stable cash flows Access to North American shale gas supplies; produce greater proportion of energy from own assets Integrated

5 Apr

Total Infrastructures Gaz France S.A.

France

EDF SA; Snam S.p.A.; Government of Singapore Investment Corporation

France; Italy; Singapore

3,119

T&D

17 Jun

AVR-Afvalverwerking B.V. Netherlands

Hong Kong Consortium led by Cheung Kong Infrastructure Holdings Centrica Plc; Qatar Petroleum International UK; Qatar

1,257

Waste management Upstream

15 Apr

Suncor Energy (South and Central Albertabased gas and oil assets)

Canada

987

Source: EY analysis based on Mergermarket data

Transaction outlook
T ransactions in the US power sector will continue as utilities struggle to manage growth. Sponsors will be active in generation opportunities. Look for lower utility valuations as the Federal Reserve tapers its bond-buying program. E uropean asset sales are expected to ramp up after a relatively quiet quarter. Countries including Turkey, Finland and Greece are expected to expedite privatization plans, bringing regulated assets into the market. In Germany, grid divestment by EnBW and operating wind farms are likely to be on the watch-list of investors. The Q2 slowdown in asset sales looks to be more a matter of timing than an issue of problematic market conditions, as we anticipate further grid divestments in Norway, Sweden and Finland later this year or early next year. But any reduction in buyer appetite would be troubling for large players with big divestment programs underway: in many cases, capital has been committed to projects elsewhere or to reduce leverage.

E merging nations will continue to witness capital inflows, particularly from Western Europe, where weak energy demand has eroded margins. While E.ON has targeted Russia, Brazil and Turkey for growth investments in 20132014, RWE is looking to increase investments in Eastern Europe. Enel will continue to build presence in Latin America, with the percentage of earnings from Italy and Spain versus growth markets to reach 5050 by 2017. O utbound Chinese M&A will continue as the search for strong regulated assets continues. The 42% stake in New Zealands second-largest electricity and gas distribution company, PowerCo, is likely to attract interest. Regulated assets in Western Europe will continue to be a focus. C hinese power companies and Japanese trading houses are emerging as major financiers of African renewable energy projects, which saw investment quadruple to US$9.3b in 2012. The trend is likely to continue with African nations opening up markets for foreign investors in exchange for capital.

Power transactions and trends Q2 2013

Section 2

Global snapshot

Spain
There is continued uncertainty on renewable energy regulation as the debate over subsidies between utilities and government heats up; the latest news is that subsidies will be cut and a more complex formula will be introduced for determining the guaranteed income that producers receive for the electricity they generate from wind and solar energy projects. In May 2013, Iberdrola and Acciona lodged separate appeals against the latest decree abolishing support for renewable energy in the form of feed-in tariffs. The Government intends to impose a cap on profitability across all renewable technologies. If applied, this is expected to push developers toward emerging markets with more favorable regulation, sparking M&A.

Turkey
Turkey is preparing to launch a new energy exchange by October 2013 to introduce electricity futures and derivatives trading. The move aims to transform the existing spot power trading platform into a more transparent market. The Government is launching tenders for up to 2GW of state-owned electricity generation capacity in the coming months, and plans to finish privatization of thermal plants by 2015. Aside from domestic conglomerates, foreign investors are likely to queue up to gain a foothold in the growing energy market.

United States
The Department of Energy (DOE) cleared the way for increased liquefied natural gas (LNG) exports to Europe and Asia by giving the green light to the Freeport LNG project in Texas, a US$10b facility. US energy self sufficiency remains a key talking point, both domestically and throughout the world. Amid rising US GDP and interest rates, Morgan Stanley lowered its view of the US regulated utility sector from attractive to in-line. We believe that valuations will decrease, potentially lowering at least one hurdle to large utility mergers. With a new paradigm comes an adjustment to valuations. The current P/E multiples are likely to be unsustainable in the long run as highlighted by the recent pullback. A revision to mean may not be the case though. We expect valuations to settle somewhere between the 10-year historical average of 15.4x (trailing P/E) and the early May peak of 20.6x.

Brazil
Rapid emergence of wind power continues. A total of 655 wind projects (combined installed generation capacity of 16,040 MW) have registered to participate in the August 2013 power supply auction. Installed capacity of 9GW will be operational by 2017, with a total investment of approximately US$10b. Wind power operators snapped up 55% of the contracts to sell power auctioned off in 2011 and 2012, undercutting the conventional producers on price. However, this is likely to change in the upcoming auctions as the Government looks to boost fossil fuel production to enhance grid reliability. The Government has announced a change in rules for these auctions to prevent wind farms from competing head-to-head with other sources of power; separate auctions will be held for conventional and renewable sources.

Africa
Continued infrastructure build out presents significant opportunities for foreign investors. Power Africa, a multi-billion dollar power initiative, has been unveiled by US President Barack Obama to help tackle the continents power deficit. The US Government has committed an initial investment of US$7b over the next five years, while private investment in the region is expected to exceed US$9b.5 After KEPCOs $407m acquisition of a 70% stake in the Egbin power plant in Nigeria, we expect a heightened M&A activity in the country led by Asian Investors, in the upcoming power plant privatizations.
5 Obama unveils $7bn Africa power initiative, Financial Times, http://www.ft.com/intl/cms/s/0/1e423b34-e183-11e2-b79600144feabdc0.html#axzz2Yd9sHpmz, 30 June 2013.

Power transactions and trends Q2 2013

United Kingdom
UK energy regulator Ofgem proposed increasing competition in the UK electricity market so as to provide a more competitive environment for independent suppliers to buy and sell power. According to the proposal, utilities will be required to post prices at which they buy and sell wholesale electricity up to two years in advance. The UK continues to be the center of M&A activity in Western Europe, attracting a number of foreign buyers. Canada-based Aquila Group acquired a minority stake in Thames Water. US-based private equity firm KKR acquired South Staffordshire Plc. As debate on the role of shale gas in the UK energy mix gained momentum, Centrica acquired strategic gas production assets in domestic and global markets.

Germany
In line with its strategy to restructure its regional utility business in Germany, EON sold a 62.8% stake in EON Westfalen Weser AG for US$472m to a consortium of municipal utilities. The deal reflects a growing trend of re-municipalization in the country. We expect municipalities to be a key contender for upcoming asset sales such as EnbWs shareholding in Stadtwerke Dusseldorf. The rapid expansion of renewable generation and a gradual shutdown of remaining nuclear power plants pushed the Government to pass the US$13b investment plan for high voltage transmission infrastructure, including 36 new high voltage power lines. The investment is crucial to integrate rising renewable energy supplies in the country.

Japan
The country has seen a significant spike in renewable energy investments, particularly solar, led by its feed-in tariff program. Goldman Sachs announced a US$2.9b investment in Japanese renewable energy projects over the next five years. Domestic investors, such as Softbank Corp., Orix Corp and Mizuho Financial Group Inc., are also betting big on solar energy. Japans solar installations grew 270% (in GW) from Q1 2012 to Q1 2013. Utilities continue to invest in US shale gas projects. In April 2013, Tokyo Gas acquired a 25% stake in the Barnett Basin shale gas development project. Sumitomo signed a 2.3mmtpa off-take agreement with the Cove Point LNG export project.

India
Regulatory reform continued to boost investor confidence in the Indian power sector in Q2 2013. In June, the Government allowed power companies to pass on the costs of imported coal to customers, a move that could help bring up to 78 GW of idle generation capacity online. The Government also revised the pricing mechanism for domestically produced natural gas. Natural gas wellhead prices are expected to double from March 2014, incentivizing additional domestic exploration and production.

China
The state-controlled grid operator proposed investing close to US$100b in an ultra-high voltage network, enabling integration of resources including wind, hydroelectricity and nuclear power. With renewable and hydro energy expected to constitute a large proportion of Chinas energy mix by 2020, smart grids and high voltage direct current (HVDC) network projects should attract significant investment in the future.

Australia
To alleviate an expected 20% increase in retail power prices in Queensland starting in July 2014, the Queensland State Government has announced plans to merge Ergon Energy and Energex, the two Government-owned power retailers. Energex operates primarily in southeast Queensland; Ergon operates largely in regional Queensland. The Government anticipates savings exceeding US$580m over seven years. The major drivers for the increased retail power prices have been the significant increase in network costs (reportedly doubling over the last five years) and the increased costs as a result of climate change policies.

Power transactions and trends Q2 2013

Section 3

Spotlight: UK water sector heats up

The UK water sector is proving an attractive destination for financial investors seeking stable returns.

Thirst for stable cash flows boosts UK attractiveness.

In 2012, M&A activity in the water sector climbed to US$3.5b, compared to US$300m in 2011, primarily driven by Rift Acquisitions Ltds acquisition of Veolias UK-regulated water assets for US$1.9b, and a US$779m acquisition of an 8.7% stake in Thames Water by a Chinese sovereign wealth fund. 2013 has already witnessed five deals worth US$660m, including the US$259m acquisition of UK-based Sutton & East Surrey Water by Japanese conglomerate Sumitomo Corporation in Q1; US-based private equity firm KKRs acquisition of South Staffordshire Plc; and the acquisition of a minority interest in Thames Water by a Canadian consortium led by the Aquila Group in Q2. Currently, 50% of UK water entities are owned by infrastructure funds based in the US, Canada, Australia and the UK.

increasingly difficult to find. Although nominal and real bond yields have risen slightly, bond yields remain at exceptionally low levels, with 10-year nominal UK government bond yields of 2.26% and real government bond yields of 1.0%, reflecting inflation of 3.2%.6

Healthy deal premiums may prompt regulatory scrutiny

Recent enterprise value/regulated capital value (EV/RCV) premiums averaging 30%. In early June, Severn Trent rejected a third offer from a consortium including Canadas Borealis Infrastructure, Kuwait Investment Office and the UKs Universities Superannuation Scheme. The offer was a 20.5% premium to Severn Trents share price the day before the announcement and represented a 31% premium to RCV. There is a risk that high valuations and the level of dividend and other distributions will trigger a regulatory response. UK regulator OFWAT will set prices for five years starting April 2015, representing a significant downside risk to further M&A. Analysts are estimating a 100-basis-point cut in allowed returns as part of the price review. But despite regulatory risks, it is expected that any cut in allowed returns would still offer a reasonable spread over the weighted average cost of capital for major utilities.7

Rising valuations underpinned by attractive returns

UK water company share prices have risen by an average 15% this year, slightly outperforming the UK stock market. Total returns of water stocks are up more than 100% since share prices bottomed out in the second half of 2009. The strong performance reflects the attractiveness of companies real returns, as yield has become Figure 2. Historical UK water M&A transactions (EV/RCV premium)
50% 40% 30% Premium (EV/RCV) 20% 10% 0% -10% -20%

South Staffs 38% BristolWater Southern Water Cambridge Water 30% 32% 31% 31%Kelda Sutton and East Wessex Water 29% South East Water Surrey 27% Anglian Water 25% 24% Mid Kent 20% 23% 26% Southern Water Bristol Water Cambridge Water 16% 14% Brockhampton South Staffs 10% Welsh Water -2% Dwr Cymru -7% -16% Northumbrian Water Oct 95 Jul 98 Southern Water Northumbrian Water -2% -1% 0% -4% -5% Wessex Southern Water Mid Kent -9% Apr 01 Jan 04 EV/RCV premium Oct 06 Linear (EV/RCV premium)

Sutton and East Surrey Veolia UK 33% Northumbrian Water 30% 25% 23% Bristol Water

Jul 09

Apr 12

Source: Socit Gnrale

Where is the capital heading?

The search for stable cash flows and low government bond yields will continue to make regulated water an attractive investment destination. We expect the following assets to be on the shopping list of investors in 2013: Kelda Group (Yorkshire Water): Investors (Citi Infrastructure and
Infracapital) are to sell close to a US$2.3b stake; Kelda shareholders have appointed Macquarie to handle the transaction. United Utilities: Despite its large size, it is seen as a potential takeover target by industry analysts. The utility reportedly hired Goldman Sachs in April 2013 to defend against a possible takeoverbid. Pennon Group: Due to the operational efficiency of its subsidiary, South West Water, it is a potential target for a takeover bid.

6 Water scarcity, Deutsche Bank Markets Research, 3 June 2013, via Thomson One, 2009 Thomson Reuters. 7 Ibid.

Power transactions and trends Q2 2013

Section 4

Transaction volume and value

Financial deal value slows as European divestment activity takes a breather

The quarter witnessed a 66% decline in financial buyer deal activity from Q1 2013. While volume remained flat, the absence of large European divestments that financial buyers are increasingly focused on dragged value down. Renewables, particularly hydro and wind, stayed at the top of the agenda for financial investors who are looking to build a diversified portfolio with stable cash flows; these deals contributed 66% to total deal value in Q2. Japan-based conglomerate Mitsui & Co., Ltd. recorded the largest financial buyer deal, acquiring a 20% stake in the Brazil-based hydro power company Energia Sustentavel do Brail SA from GDF Suez for US$565m. With natural gas increasingly becoming an important constituent of the global energy mix, investors pursued several gas T&D assets, contributing 23% to deal value. Rising demand from Asia-Pacific and Europe make these assets a good addition to the portfolio. While North American and European financial investors are likely to remain dominant in global P&U M&A, we expect new hubs of financial investment to emerge in the coming months, led by Japan and the Middle East. In July 2013, a consortium of Japanese investors, including Japans Pension Fund Association and Mitsubishi Corp, joined Canadian fund Omers to buy a stake in the US$2b Midland Cogeneration Venture, one of the largest gas-fired cogeneration

facilities in the US. With the market for Japanese government bonds shrinking because of a change in policy at the countrys central bank, and restrictions on ownership of power assets in Japan, foreign acquisitions are likely in the coming months. Similarly, cash-rich Middle East investors have started to flex their muscle. Kuwait Investment Authority has announced an investment of US$5b in UK infrastructure assets. Figure 3. Financial vs. corporate buyer deal activity
60

40

26 4 7 15 22 21 4 24 15 20 4 5

20

36

31

18 0

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Corporate deal value (US$ b) Financial deal value (US$b) Financial deal volume

Source: EY analysis based on Mergermarket data

Segment analysis
Integrated segment dominates global deal activity on the back of mega deals in the US and China; renewables continue to lead in terms of volume. Generation Deal value US$2.4b, down from US$4.9b in Q1 Deal value and volume declined 53.3% and 23.1% quarter-onquarter, respectively. The US recorded the highest concentration of deals. Despite the NV Energy/MidAmerican deal being classified in the integrated segment, the transaction included 21 power plants with a total capacity of more than 9,000 MW. T&D Deal value US$6.6b, down from US$10.5b in Q1 Deal value slid 37% quarter-on-quarter to settle at US$6.6b. Europe witnessed the biggest fall (59%), but the region still contributed nearly 64% of T&D deal value driven by divestments such as EDFs sale of a 49% stake in Slovakia-based Stredoslovenska energetika. Asia-Pacific witnessed the biggest rise, with five deals in the quarter worth US$1.2b, led by a Chinese state-owned grid operators acquisition of a 20% stake in SP Ausnet and a 60% stake in SPIAA. Renewables Deal value US$3.6b, down from US$5.7b in Q1 Deal value was down 38% quarter-on-quarter, largely due to the decrease in Asia-Pacific. Europe continues to dominate in volume, with Germany emerging as the most active bidder (eight deals). Deal value in the Americas shot up 71%, largely driven by hydro power deals in Brazil led by Mitsuis US$565m acquisition of a 20% stake in Energia Sustentavel do Brasil SA. The largest individual

plant deal of the quarter in terms of capacity was Consolidated Edison Inc.s acquisition of Sempra Energys 150MW Mesquite solar plant. Terms werent disclosed. Integrated, water and others Deal value US$20.5b, up from US$4.2b in Q1 While volume remained flat, large value corporate mergers in the US (US$10b acquisition of NV Energy) and China (US$7b merger of China Power and China Gas) pushed value up significantly. The water and wastewater segment in Europe witnessed a surge in cross-border deal activity. Figure 4. Q2 2013 deals snapshot by segment
25,000 20,000 Deal value (US$m) 15,000 10,000 5,000 0 -5,000 Generation T&D Renewables Integrated and others

10

20

30

40

50

*Size of the bubble indicates average deal value Source: EY analysis based on Mergermarket data

Power transactions and trends Q2 2013

EY Global Power & Utilities contacts

Global contacts
Joseph Fontana Global Transactions Power & Utilities Leader New York, US +1 212 773 3382 joseph.fontana@ey.com Tony Ward EMEIA Power & Utilities Transactions Leader Birmingham, UK +44 121 535 2921 tward1@uk.ey.com Brazil Luiz Claudio Campos Partner, EY Brazil Transaction Advisory Services Rio de Janeiro, Brazil +55 213 263 7121 luiz-claudio.campos@br.ey.com Lucio Teixeira Director, Transaction Advisory Services Sao Paulo, Brazil +55 112 573 3008 lucio. teixeira@br.ey.com Canada Gerard Mclnnis Partner, EY Canada Transaction Advisory Services Alberta, Canada +1 403 206 5058 gerard.mcinnis@ca.ey.com China Eleanor Wu Partner, EY China Transaction Advisory Services Beijing, China +86 10 5815 3387 eleanor.wu@cn.ey.com Germany Rainer Koenig Partner, EY Germany Dusseldorf, Germany +49 211 9352 10289 rainer.koenig@de.ey.com Matthew Rennie Oceania Power & Utilities Leader Brisbane, Australia +61 7 3011 3239 matthew.rennie@au.ey.com Joseph Rodriquez Global Power & Utilities Sector Resident, Transactions New York, US +1 212 773 7105 joseph.rodriquez@ey.com India Kuljit Singh Partner, EY India New Delhi, Delhi India +91 11 6623 3110 kuljit.singh@in.ey.com Japan Kenneth G. Smith Managing Partner and Area Leader Transaction Advisory Services Tokyo, Japan +81 34 582 6663 kenneth.smith@jp.ey.com Russia Edgars Ragels Partner, EY Russia Transaction Advisory Services, Moscow, Russia +7 495 755 9724 edgars. ragels@ru.ey.com Spain Pedro Rodriquez Partner, EY Spain Transaction Advisory Services +34 915 727 469 pedro.rodriquezfernandez@ es.ey.com UK Ian Whitlock Partner, EY UK Transaction Advisory Services London, UK +44 20 7951 0892 iwhitlock@uk.ey.com
2013 EYGM Limited. All Rights Reserved. EYG no. DX0200 CSG/GSC2013/1118381 ED None
This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EYs Global Power & Utilities Center In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EYs Global Power & Utilities Center brings together a worldwide team of professionals to help you succeed a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant sector issues. Ultimately it enables us to help you meet your goals and compete more effectively.

ey.com/powerandutilities

Doing the right deal in power and utilities

Doing the right deal can make a power and utility business more competitive and profitable. Clients turn to EYs Transaction Advisory Services professionals for advice and support through the life cycle of a transaction, from early stage strategic analysis to due diligence and valuation services and post-deal activities. Whether the transaction involves acquisitions, alliances, joint ventures, sales, divestitures or securitizations, we help clients do the right deal at the right price. We help evaluate risks that can impact value, optimize the business and tax structures, estimate synergies and execute the deal. We combine proven practices and consistent methodologies with fresh thinking, giving the advice our clients need to make informed decisions and achieve successful outcomes.