Oil and gas deals market on the rise

ACTIVITY: Aberdeen-headquartered EnerMech, which has interests across the gobe including South Africa, was acquired by US-based Carlyle Group in one of the year's more high-profile moves
Aberdeen-headquartered engineering firm EnerMech’s African operations **Please add details

We have witnessed a steady increase in merger and acquisition (M&A) activity in the oil and gas sector in 2018 with a number of high-profile transactions concerning companies and/or asset sales in the upstream exploration and production (E&P) space as well as the energy services sector and supply chain.

The ongoing recovery in oil price and increasing price certainty has resulted in upstream E&P deal activity leading the way. There are many notable examples of this during 2018, including Total closing out its acquisition of Maersk Oil and BP’s exchange of non-core North Sea and Alaskan assets with ConocoPhillips.

This trend appears set to continue, with recent announcements from Total and Chevron about divesting assets with Premier Oil and Faroe Petroleum stating their intentions to make possible acquisitions in the North Sea.

In recent months there has been a positive uptake in service sector M&A transactions led by the private equity (PE) community. One of the most recent high-profile examples of this saw US-based Carlyle Group acquiring Aberdeen-headquartered mechanical and electrical services group Enermech for £450m to facilitate an exit for Lime Rock Partners, which had initially invested in the business in 2008.

The Enermech transaction was quickly followed by Blue Water-backed 3T Energy Group acquiring safety training business Survivex and Hg Capital selling its interest in Atlas Knowledge, an e-

Learning and online training provider, to Mintra Group who are backed by US based PE investor Riverside Company.

Should the trading performance of PE portfolio companies continue to recover into next year then we anticipate further transactions in this space as PE investors look to recycle their funds.

Throughout 2018 we have also seen the larger service companies actively looking for bolt-on acquisitions in support of achieving their growth and strategic obejctives, including Oceaneering’s acquisition of seabed preparation and trenching business, Ecosse Subsea for a reported £50m together with Actuant’s acquisition of flange integrity and maintenance business Equalizer International.

Callum Gray

We have also witnessed an increasing number of companies looking to raise finance to fund growth and increased working capital requirements, such as the significant recent growth capital investment in Aberdeen-based drone inspection and technology company Air Control Entech and EV Private Equity closing out its investment in subsea optimisation specialists Enpro Subsea at the beginning of the year.

At AAB we are keen to maintain strong positive momentum having completed more than 45 transactions in the first 10 months of 2018, including the Survivex, Enpro Subsea, Equalizer and Air Control Entech deals noted above. We anticipate that our overall deal activity in 2018 shall increase by 10% from last year and expect further growth in deal numbers in 2019.

Looking ahead to 2019, it was very encouraging to read the announcement earlier this year by Oil & Gas UK, stating that the number of new developments sanctioned was more than that of the previous three years combined which is anticipated to unlock £5 billion of new investment.

This can only be positive for the industry as it continues to respond to the challenging market conditions and stricter capital discipline.

In addition, it shall be interesting to see how the potential macro-economic uncertainties being caused by Brexit influence the M&A market. In our experience, whilst this is a discussion point between buyers and sellers, it is seemingly being offset against improving trading conditions as the oil price remains above $70 bbl, which is allowing the gap between the two parties in respect to price expectations to narrow and for deals to be done.

In terms of areas of the market where we anticipate increased activity, with greenfield and major brownfield projects at their highest since 2013 and from recent conversations with acquisitive trade players and PE investors who have “right sized” their own businesses, there is increasing interest with those who now have the resources to strike while the iron is hot and are keen to actively pursue companies of interest.

Therefore, companies concerned with the provision of manpower, engineering capabilities and/or drilling activities are likely to attract interest – especially those with niche technology which improve efficiencies and data capturing and predictive software enabler service offerings.

Our own pipeline of work has recently hit an all-time high in respect to the number of potential deal opportunities spread across E&P transaction support together with M&A and fundraising transactions involving business concerned in the energy services sector and we look forward to having a strong finish to the year and building on that into 2019.

Callum Gray is corporate finance director at Anderson Anderson & Brown LLP

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