Theappeal of utilitysector mergers andacquisitions has notdiminished, but the deals themselves may be getting smaller as the industry'sbig players finalize their consolidations, one expert said recently.
Growthopportunities in the utility sector continue to be increasingly gas-centric,which gives the more sluggishly growing electric companies both strategic andfinancial motivation to latch on to their gas-focused brethren, GerryYurkevicz, a partner with Oliver Wyman, said in a recent interview.
Thetrend has made headlines in the form of major, high-premium deals, includingSouthern Co.'sacquisition of AGLResources, Duke EnergyCorp.'s purchase of Piedmont Natural Gas Co. Inc. and 's .
Withso many of the big names in the sector having already been picked off, theM&A movement maybecome less visible but no less vital, Yurkevicz said.
"Overallthis is an attractive business … and we have a lot of utilities still in NorthAmerica, [so] I would think there would continue to be a deal streak," hesaid. "There are some smaller acquisitions around that people shouldn'tforget about."
Inthe past decade, the comparatively smaller gas utilities have "risen inprominence and in stature" in the utility sector, said Yurkevicz, whoserves as a utility industry management consultant. In his estimation, thisshift has even bolstered the value of more diminutive gas utilities.
"Peoplelike big things, but there are good opportunities … in smalleracquisitions," Yurkevicz said. "Electric is going to be low growth…and there is some risk that distributed generation will take away some of yourearning power. [The] management of utilities … is pretty rational, and they'llgo where the earnings are."
Theregulatory response to the M&A activity has been positive and constructiveon the whole, he said, but smaller gas utilities do have an advantage inpassing the regulatory approval process. With fewer stakeholders to satisfy anda narrower set of risks to consider, smaller scale deals have a better shot atgetting through regulatory hurdles expeditiously.
"The bigger acquisitions [are] a little bit harder froma regulatory approval point of view," Yurkevicz said. "There arecertain things that some regulators want and you have to get them."