Mixed outlook for M&A

June 1, 2012

Despite higher oil prices, improving access to capital, increasing economic optimism and a generally more favorable deal environment, oil & gas executives are still cautious about engaging in M&A, according to Ernst & Young's sixth Global Capital Confidence Barometer, released in London last month.

Just 31% of the 141 oil & gas executives surveyed in April said they expected to pursue an acquisition in the next 12 months, down from 48% in October 2011, and the lowest figure since the barometer began in 2009. By contrast, the number of businesses looking to sell assets rose steeply, from 20% in April 2011 to 47% in April 2012-'a clear sign that companies regard portfolio management and a renewed focus on their core business as a priority, says Andy Brogan, Ernst & Young's global transactions advisory services leader for oil & gas.

puzzle

While oil & gas executives are in a more confident frame of mind, they are still applying caution to M&A, Brogan notes. Economic outlooks remain uncertain and geopolitical instability continues to be a concern.

Over half of the oil & gas executives surveyed view the global economy as improving, more than double the 22% in October 2011. Supporting this is the positive current sentiment around corporate earnings and economic and employment growth with 91% of oil and gas companies expecting to maintain or increase their workforce in the next 12 months.

Meanwhile, investment bank Robert W Baird said last month that it did not see the energy services sector's heavy M&A deal flow through 2011 and 2012 being staunched any day soon.

Baird, who advised on the recent sale of Scottish-based procurement, compliance and performance services provider M&C Energy to Schneider Electric by UK private equity firm Lyceum Capital, said the 15 or so M&A transactions already completed in the sector in the past six months was well above the long-term average and many of them involved the acquisition of independent service providers by large global companies.

We are seeing increasing levels of M&A activity in the energy services/energy management space, comments Baird's managing director Jonathan Harrison, pointing out that revenue figures for the energy services market in 2008-13 showed CAGR of 8% in Europe and 16% in North America. As well as the sector's strong growth prospects, key features driving this deal flow included the industry's relative immaturity and high degree of fragmentation, concludes Harrison. OE



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