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Power Deals 2004, PricewaterhouseCoopers' annual review of M&A activity in the industry, shows resurgence in confidence contributing to record highs after the extreme lows of the previous year.

Total deal value in the global gas and electricity sector was $123.1 billion (£64.5 billion) in 2004, substantially ahead of the total recorded in any year since 2000. Deal volumes rose in every major region with purchases in North America leading the way.

Part of the recovery was a rebound from the heady period around 2000 as US companies continued to extricate themselves from investments in far-flung markets that had proved unsustainable.

The main momentum behind the activity, however, was a switch in strategic direction by power companies, according to Mark Hughes, European utilities leader in the corporate finance and recovery team at PricewaterhouseCoopers.

"The former decline has been gradually reversed and then overtaken by renewed confidence that has seen regionalisation replace globalisation as the dominant sector strategy," Hughes said. "The quest for a global footprint that characterised the earlier period of record M&A activity has been largely replaced by a determination to consolidate domestic presence and establish stronger regional footprints."

The gas sector saw a big jump in deal values with total M&A worth rising more than seven-fold to $25.2 billion from $3.3 billion, in part fuelled by National Grid Transco's $10.3 billion pending disposal of UK network assets.

Although the single deal spotlight was on the US, the strength of underlying European deal activity was reflected in a 24% volume increase in bid activity by European entities. Elsewhere, the number of transactions involving North American and Asian Pacific bidders rose by 10%. The year also saw significant increases in activity in the Asia Pacific region.

Looking ahead, Manfred Wiegand, PwC's global utilities leader, expects continued buoyancy in M&A activity.

"We expect to see a sustained level of activity in the power deals market rather than a further stratospheric rise," he said. "In all the key markets there is room for further consolidation and expansion. In the main, power companies will be on the search for growth through continued bulking-up and expansion of core regional presence rather than internationalisation or diversification. However, we would not rule out more global moves by key players and we are very likely to see maintained levels of international involvement by financial players."

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