Utility executives believe 2006 is year of mergers: Capgemini

London (Platts)--22Feb2006

International utility executives gathered in London this week believe
that increasing deregulation will continue to drive M&A activity in the
European utility market, a Capgemini survey showed Tuesday. Nearly half of
executives surveyed said the main drivers in Europe were deregulatory progress
and the need for utilities to gain new market share. But nearly 40% said
regulatory scrutiny would delay most deals.
     The Pulse survey of 24 utility executives, representing 63% of utility
attendees at the Edison Electric Institute (EEI) International Utility
Conference, was conducted by Capgemini, the consulting, technology and
outsourcing company.
     "The Capgemini survey shows that a majority of utility industry
executives are convinced that consolidation will sweep utilities on either
side of the Atlantic," said Colette Lewiner, Capgemini's senior vice president
and global energy & utilities leader. "Clearly more transformational
outsourcing will take place to achieve needed synergies as consolidation
continues in the industry. But, as our survey suggests, the pace of
consolidation could be slowed down by regulatory obstacles."
     Executives were split on the likelihood of additional M&A activity in the
US, despite the recent repeal of US laws that have restricted mergers and
acquisitions among utilities: 32% think 2006 will be the "year of the utility
merger;" 32% believe most utility companies don?t yet see the benefits of M&A
strategies; 28% view regulatory scrutiny as delaying the completion of most
deals.
     On both sides of the Atlantic, 96% of respondents believe that the
ability of generation and commercial synergies may or will absolutely increase
the viability of M&A strategies for the utility sector. And, the same number
believe that the ability to create synergies and efficiencies in back office
management may or will absolutely increase the viability of M&A strategies.
The study also found that 71% of executives believe more business process
outsourcing of finance, human resources and IT functions is likely in the
future because it strengthens balance sheets and generates free cash flow that
can be invested elsewhere in the business. A fourth of respondents said
utilities should "absolutely" outsource horizontal processes before a merger
or acquisition in order to gain immediate cost savings. And another 54% said
utilities should "maybe" outsource.
     Other key findings from the Capgemini survey were: 54% of executives are
less positive about the security of supply in Europe than they were 12 months
ago. Only 4% are more positive about supply security and 42% are unchanged;
60% expect their company?s investments in technology projects to increase in
2006, while 40% expect their investment levels to stay the same as 2005; 30%
of executives are less positive than they were 12 months ago on the state of
electricity deregulation in the European Union. Nearly 20% are more positive.

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