Post slump transactions

EY’s biannual ‘Oil & Gas Global Capital Confidence Barometer’ has shown that 56% of global oil and gas executives are ready to transact in the next 12 months, and 60% expect to complete at least two deals. Andy Brogan, EY’s Global Leader Oil and Gas Transaction Advisory Services said, “transaction activity may have hit a five year high in 2014, but the first quarter of 2015 was one of the quietest in recent years. The sudden and steep drop in oil price forced many companies, particularly those in upstream and oilfield services, to adopt an intense internal focus, aggressively cutting spending and costs. Transaction opportunities in the form of mergers and divestments have been delayed by uncertainty over oil price outlook. Now those acquisition opportunities, coupled with increased confidence in the global economy, are setting the stage of increased M&A activity.”

99% of the respondents expect the deal market to improve or remain stable over the next year, and 97% expressed similar confidence in the global economy.

Middle market deals

A combination of the types of opportunities available and relative valuations means more M&A activity is expected in the middle market. 74% of oil and gas companies currently pursuing transactions are considering deals of under US$250 million.

Enabling deal making

85% of global oil and gas executives now expect the valuation gap between buyers and sellers to remain at bridgeable levels. This will encourage deal making in the near term.

Boardroom agenda

For the majority of the last three years, growth occupied the strategic agenda for oil and gas companies. Now the focus is on portfolio optimisation, managing the cost base and risk profile in the current challenging environment. The ‘Capital Confidence Barometer’ shows 63% of oil and gas executives, three times as many respondents than in April last year, are dedicated to reducing costs and improving operational efficiencies while continuing to look for opportunistic acquisitions in the year ahead.

Brogan commented, “innovation, complexity and disruption are defining a new M&A market in the oil and gas sector. While increased optimism is driving greater appetite for deals, challenges persist. Commodity price uncertainty and geopolitical volatility will continue to influence transaction decisions. Companies that exercise capital discipline and maintain opportunity will come out on top.”

Edited from press release by Claira Lloyd

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