Canadian investors contend with new industry challenges
TORONTO, May 29, 2012 /CNW/ - Canadian power and utilities (P&U)
companies may face an uphill battle when it comes to investing this
year, despite positive mergers and acquisitions (M&A) activity in the
first quarter (Q1) of 2012, says Ernst & Young.
According to the new report Power transactions and trends: global power and utilities mergers and
acquisitions review, Q1 2012, Canada was one of the most active countries by bidder in Q1 and the
most active cross-border participant in the US, featuring in two of the
top 10 deals of the quarter.
"The next 12-month period is shaping up as one of the most critical
times in recent memory. How companies position themselves now will
shape their long-term future," says Steve Power, Leader of Ernst &
Young's Canadian Power & Utilities practice. "Canadian P&U deal
activity may have soared in Q1, but the low cost of natural gas is
already having a significant knock-on effect on global M&A activity
that's sure to dampen deal appetites in Canada, making for challenging
The combination of continued economic uncertainty, tightening financial
markets and disparity in global gas pricing resulted in Q1 2012 total
global deal volume falling 30% from Q4 2011 and a 16% drop in corporate
deal volumes year on year.
While the P&U industry is approaching an inflection point, where
competing pressures of environmental regulation, sovereign instability
in Europe, government austerity programs and decade-low natural gas
prices in the US are colliding, the opportunity for Canadian companies
to invest globally remains open.
However, the proposition to invest in renewable energy has also been
re-evaluated by many investors as they move forward with caution. The
lack of government support and uncertain regulatory schemes, combined
with low natural gas prices across North America and globally, have had
a cooling effect on investment appetite.
"Canadian P&U companies should be looking to invest in emerging
economies — where the growth prospects far exceed those in developed
nations — and extend their global reach," says Power. "But new risks
and challenges brought on by continued economic uncertainty could
temper investment. Canadian P&U executives must be nimble when it comes
to assessing business cases and investment portfolios to seize global
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