Merger and takeover activity in the oil and gas sector could be affected by the collapse in oil prices according to the latest data from accountancy giant KPMG.
The challenges faced by the global energy sector are in evidence in the 19% fall in market capitalisations of the largest energy companies between June 2014 and June 2015. Profits are also down considerably over the same 12-month period, according to the firm.
Dane Houlahan, Head of M&A in Scotland for KPMG added: “With oil prices continuing to experience new multi-year lows, we can expect many of the acquisition plans of companies in the energy sector to be delayed or reconsidered, but it will also lead to opportunistic buys.
“In the broader market, for those corporates with the capacity to transact, this year will present opportunities to uncover some great value in the market.”
The UK’s hunger for M&A is outstripping the US and Europe, but data suggests that the capacity to fund deals could be about to wane, according to the latest edition of KPMG’s Global M&A Predictor.
Between June 2015 and June 2016, forward price-to-earnings ratios – the measure of corporate appetite or confidence – of the UK’s largest corporates, are forecast to increase by 13%, compared to 8% in Europe and 6% in the US.
However, net debt to EBITDA – KPMG’s measure of capacity – is predicted to fall by 7% over the same period.
Houlahan said: “With the debt markets more accessible than they have been for some time, our view is that the capacity for deals by UK corporates is showing little sign of diminishing.
“Couple this increasing buoyancy with a more stable economy and a greater convergence between vendor and purchaser price expectations, and all the signs are there that UK deal volumes will increase steadily over the coming months.”
Increasing confidence still does not appear to be reflected in actual transaction levels, with both completed deal volumes and values falling in the UK and globally over the six-month period from January to June 2015.
Houlahan said a potential fly in the ointment is that increasing confidence still does not appear to be reflected in actual transaction levels, with both completed deal volumes and values falling in the UK and globally over the six-month period from January to June 2015.
He added: “Globally, it feels like there has been a slight slowdown in the market.
“The continuing impact of low oil prices and political instability in some regions should not be overlooked and, of course, one wonders whether this will be exacerbated by the recent volatility seen in the capital markets.
“However, we continue to have strong expectations for deal activity in the coming months and there are real pockets of strength to be found.”
Elsewhere, KPMG noted the defensive healthcare sector looks more stable, with an 18% increase in market capitalisations and a 7% rise in appetite for M&A. telecommunications is also looking strong, with an 8% increase in appetite.
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