NEW YORK (The Deal) -- Last October, a consortium of investors led by Macquarie Infrastructure and Real Assets and British Columbia Investment Management acquired Cleco (CNL) for $4.7 billion, including $1.3 billion of assumed debt.
The price represented about a 15% premium to Cleco's closing price of $48.27 on Oct. 17, 2014, the last trading day before the company's announcement.
The deal was one of four in the fourth quarter last year involving financial investors acquiring energy assets, according to a recent report from PricewaterhouseCoopers. The four transactions represented about 35% of the total deal value for the the period. And given the dynamics shaping the industry right now -- low commodity prices, weak demand, depressed valuations and investment funds flush with cash -- more such deals are likely over the next several months.
The prevailing view among vendors and targets is that valuations are unlikely to improve any time soon, so the time to sell or divest is now. The result: a perfect recipe for dealmaking. In 2014, there were 54 power and utilities deals worth $67.7 billion, a 123% increase in total value from the 42 transactions worth $30.4 billion in 2013, according to the PwC report.
"In 2014, deal activity ended on a high note in the power and utilities industry, building on the increase in both deal volume and deal value that was seen throughout the year. During the year, we saw deal activity driven by large corporate deals, renewable transactions and merchant power deals," said Jeremy Fago, PwC's U.S. power & utilities deals leader.
Renewable power deals — spurred by the new yieldco phenomenon — dominated the M&A scene. Renewables represented 68% of total deal volume in the fourth quarter of 2014, according to PwC. The 15 renewable transactions totaled $4.8 billion, a significant increase compared to the previous year, which saw six deals worth $664 million.
"With investors' continued desire for yielding investments, we continued to see yieldco activity driving renewable deal volumes, to support drop downs and growth for these investment vehicles," Fago said.
The yieldco, a financing vehicle that mimics the economics of MLPs and REITs, grows by either dropping down assets -- meaning that projects are put into the yieldco from the parent -- or acquisitions, with some growing through drop-downs and acquisitions.
In November 2014, St. Peters, Mo.-based SunEdison's (SUNE) yieldco subsidiary took a deep dive into wind, with its acquisition of First Wind in a transaction valued at $2.4 billion. The deal provided the yieldco, named TerraForm Power (TERP - Get Report) , with an entrance into the wind market and significantly increased the company's installations to 2.1 to 2.3 gigawatts of capacity from 1.6 to 1.8 GW. Included in the transaction was an additional 6.4 GW of project development opportunities.
Corporate transactions accounted for eight deals totaling $12.6 billion, or 72% of all deal value in the fourth quarter of 2014, according to PwC. Compared to the same period in 2013, corporate deal value increased 63% in the fourth quarter of 2014, the report said.
A source familiar with the deal said that Honolulu-based Hawaiian Electric had a "soft" for sale sign up for a while, as the utility was looking for a buyer to help bolster growth.
Hawaiian Electric shareholders received an estimated total value of about $33.50 per share, representing about a 21% premium to its trailing 20-day volume-weighted average as of the close on Dec. 2.
Meanwhile, vertically integrated utilities are also still evaluating their unregulated merchant generation businesses and either pruning them or unloading them altogether.
Asset transactions totaled 14 deals worth $4.8 billion -- an 83% increase in total deal value compared to the fourth quarter of 2013, according to the PwC report.
Chicago-based Exelon (EXC) has been trimming its merchant business, selling several power plants last year. Its most recent transaction was on Oct. 24 when it sold its interests in its Keystone and Conemaugh facilities in Pennsylvania to ArcLight Capital for $480 million.
Exelon's final merchant power plant on the block is Hillabee, in Alexander City, Ala., which it is selling via JPMorgan Chase. A source familiar with the matter said the Hillabee process is in a late stage and will transact by the end of the first quarter.
Other utilities are unloading their unregulated businesses altogether. The Deal reported on Jan. 6 that American Electric Power (AEP) , the Columbus, Ohio-based electric utility, retained Goldman Sachs to explore options for its 7,923 megawatt merchant generation business. A sale price likely will range from $2.8 billion to $3.6 billion.
Other utilities have already taken the plunge with their unregulated businesses. In June, PPL (PPL - Get Report) and Riverstone Holdings announced an agreement to combine their unregulated power generation businesses into a new, standalone, publicly traded company called Talen Energy.
Duke Energy (DUK) , the Charlotte, N.C.-based electric utility, opted for an outright sale, announcing on Aug. 22 that it had sold its Midwest power generation assets to Dynegy (DYN) , the Houston-based independent power producer, in a transaction valued at $2.8 billion.
Going forward "[l]arger utilities will stay focused on integrating previous megadeals, while continuing to keep an eye on the market for potential opportunities," Fago said.
Financial investors, though, should be somewhat more active on the acquisition trail.