Fukushima Daiichi’s Effect on M&A in the Power Industry

The Japanese tsunami and resulting tragic accident at the Fukushima Daiichi nuclear power plant forced a pause in the growing positive sentiment behind this source of power. While opinions appear to have turned against growth in this sector there is still substantial infrastructure that needs to be maintained. These factors might have led a number of investors and acquirers to move away from this segment and focus on other parts of the power industry. The transaction data disputes this and shows that interest in companies that serve the nuclear industry remains strong.

The data demonstrates that investment in companies that work in the nuclear industry continues to be robust. After evaluating the eighteen months prior to the Fukushima Daiichi accident versus the eighteen months after, transactions (mergers, acquisitions and private placements) increased by 13.0% compared to an overall expansion in market activity of 7.8%. During the eighteen months prior to the accident activity slowed due to the economic down turn, but the pace of growth in nuclear sector transactions outstrips the overall market during this period.

 

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Transaction Data 18 Months Before and After the Fukushima Daiichi Accident

Additionally, when evaluating the transaction value during these time frames it initially appears that investment during the period prior to the accident was substantially higher than the period after the accident. The data is skewed by the announcement of Duke Energy’s acquisitions of Progress Energy. For this analysis the announcement date determined which time frame it would be included in. Once this transaction is removed total capital invested through a merger, acquisition or private placement grew 454.8% from $1.3 billion to $7.4 billion. When evaluating the increase on per transaction (only including the transaction with disclosed financials and excluding Progress Energy) the improvement remains dramatic, the average value of a transaction expanded by 425% from $38 million to $199 million.

What does this all mean? The appetite for companies that serve the nuclear sector has strengthened even though the sector as a whole faces significant head winds. Investors and acquirers see the value that companies can derive from manufacturing products or offering services that are needed to keep this segment operating. Even with limited capacity additions expected in the near to mid-term, this industry creates significant spending on an annual basis to keep nuclear power plants in compliance with myriad federal, state and local regulations as well as increases in power production, which results in consistent spending on equipment and services. This kind of predictability presents a good investment opportunity and helps explain the growth in transactions and capital invested. While the cloud of uncertainty hangs over this industry in general, the companies that have a track record of serving this sector remain an attractive investment.

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Michael Rosendahl

Investment Banking
mrosendahl@pcecompanies.com
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