A renewed optimism in oil and gas will drive M&A activity forward in the new year, a top north-east dealmaker has said.
Mike Beveridge, managing director of Simmons Energy, said 2019 had been a “strong” but not particularly stable year for mergers and acquisitions.
But he said improved market conditions is resulting in a “slow resurgence in deal appetite” in regular offshore activities.
He said: “In a highly political year, defined by Brexit and climate change and culminating in a general election, you will forgive me for corrupting a slogan from our former prime minister to describe the last 12 months.
“It’s been a strong, but not stable, year for M&A activity in the oilfield services sector. A number of deals have closed, despite the market and political environment, not because of them.”
He said the main factors driving this have been the slow and steady recovery in overall oil and gas activity with the exception of US shale.
This has led to a shift in emphasis among large service companies and investor groups.
Mr Beveridge added: “Several players are now looking to capitalise on the improved market conditions and invest ahead of the next growth curve. The welcome return of interest in offshore subsea and deepwater projects has further fuelled confidence and, although the major capex spending on these is still some way off, they are part of the renewed optimism, which will drive future M&A activity.
The trend away from US shale dominated M&A, as investors start to question the long-term growth potential and true cash returns from this resource, is resulting in a slow resurgence in deal appetite in conventional, Eastern Hemisphere and offshore plays.”
Mr Beveridge said many private equity firms have been looking for a way to take advatage of the period of recovery.
He said: “Having nursed their investee companies through the prolonged downturn, many private equity firms have been actively seeking exits to return capital back to their investors and take advantage of this period of recovery.
Private and entrepreneur-owned companies will often be open minded about selling to trade or private equity, to generate liquidity for many years of hard work and risk taking. The downturn has delayed the exit horizon for many entrepreneurs, so “2019 was, and 2020 now looks to be, an attractive window in which to transact at fair valuations.
“Finally, the energy transition, largely driven by the climate change agenda, has propelled traditional hydrocarbon focused service companies to acquire renewable energy skills, expertise and technology. The most recent deal, which highlights this trend, is the sale of 3Sun to Worley earlier this year.”
Mr Beveridge said Geo Markets are also important drivers of M&A. With high levels of activity and spending, the Middle-east remains a powerhouse, driving deal flow as international companies look to gain exposure in this region.
He said: “Equally, the Norwegian Continental Shelf has seen a quicker and sharper recovery than the UK which has generated a meaningful deal flow.
“Meanwhile, the UKCS remains a frustrating market where talk of an upturn hasn’t yet resulted in enough action. UKCS orientated M&A activity therefore remains somewhat subdued. While there is growing belief in an upcycle, largely driven by the spending plans of many new E&P entrants, much is still to materialise.”
