European companies may soon begin looking for power sector
investments in the US, according to an executive of a US hedge
fund who spoke at a conference in New York City in June.
"I wouldn't be surprised to see European firms -- after
gobbling up everything they can [in Europe] -- looking to the
US" to take advantage of arbitrage situations, said Scott Pearl,
director of Seneca Capital Management, which he described as a
"value-focused investment fund" that looks across the investment
spectrum from debt to equity.
The biggest opportunities to earn a return right now in the
power sector are publicly traded competitive power companies
that perpetually trade at a "big discount" to the spark spread
recovery that is under way in the industry, said Pearl, speaking
at Platts' 4th Annual Utility M&A Conference.
Pearl declined to name any European power firms that might
soon show up looking for US power sector investments. But in the
past couple of years, large European energy companies such as
E.ON of Germany, Enel of Italy, Endesa and
Iberdrola in Spain,
Suez of Belgium, and UK-based Scottish and Southern Energy have
been very active in vying for control of the reigning regional
power companies.
Seneca, which is now known as SCM Advisors, has $11.3 billion
under management.
One foreign firm -- albeit a financial player, not a
strategic investor -- that has already ventured into the US
market is Macquarie Securities, which in May closed on its
acquisition of Duquesne Light Holdings.
"The US power sector is undervalued compared with Europe and
Australia because of regulatory risk," said Alan James, senior
managing director, Macquarie Securities (USA). James said that
Macquarie "continues to have discussions with a number of
utilities." "We are very broad minded," said James, explaining
that those discussions could include everything from joint
ventures to outright acquisitions.
Macquarie takes a long-term view on its investments, said
James. "Our mantra is never to sell."
ArcLight Capital Partners, on the other hand, which manages
$10 billion of assets and has $4.6 billion of equity capital
under management, is more focused on opportunities in the
unregulated power sector and has tended to take stakes in
individual distressed assets. US utilities "have real regulatory
risks," said Matthew Runkle, vice president at ArcLight, who was
on the panel discussion with James and Pearl.
Runkle said one opportunity ArcLight is looking at in the
power sector is utility companies that might find it beneficial
to spin off their unregulated assets, though he declined to
elaborate.
Created: September 4, 2007
