Two years on, the fallout from the Macondo oil spill in the Gulf of Mexico continues to cause ripples on this side of the pond, with cash-rich US companies seeking out potential merger and acquisitions of UK continental shelf-based firms.
Strategically, some US companies are moving away from Gulf offshore activity to onshore shale gas fraccing activities, while others are looking to add value for clients by seeking out specialist technologies or intellectual property which offers competitive advantage or new product lines.
With its long tradition of exploration in a challenging environment, it’s fair to say the North Sea has not been short of entrepreneurial companies with innovative technologies, and this is now complemented with a fast-expanding specialist subsea sector in Aberdeen.
The North Sea is also an attractive proposition for US firms looking to extend their geographic presence as many Scottish and UK businesses are well established in Norway, increasingly in West Africa and from Singapore across the Asia-Pacific oil and gas hubs.
Many of the acquisitive US companies are able to progress these deals without the need of funding from this side of the Atlantic – and therefore not subject to the vagaries of the UK banking system – with access to strong credit lines from their own banks in the US or through share issues.
Selling to an industry specialist as opposed to an investment house is something that should be taken into account when looking at potential buyers. Business owners considering an offer from US energy sector companies will be comforted that they are dealing with knowledgeable purchasers who understand their business and have a realistic expectation of what can be achieved going forward.
Closer to home there are private equity investors who have raised funds and are keen to invest, but not all of them have experience of the oil and gas industry. Getting into bed with a less-informed buyer can potentially lead to deal delay, difficulties and price problems.
This type of purchaser will be focused on building the turnover and profit over a short timeline and may have designs on putting new management in place as part of tightening up internal processes.
Increasingly we are seeing more earn-out arrangements as part of the merger or acquisition process, which requires key staff to remain with the business for a set period and includes a deferral on payment of a portion of the sale price, with total payout conditional on certain financial performances being achieved.
These earn-out deals ease the nervousness of buyers about overpaying for a business then watching the previous owners sit back with little incentive to help grow the new entity or, worse, walk out the door and set up a rival firm. Conversely, sellers may be concerned the buyer changes the way the business is running to such an extent that it adversely affects the ability of the business to earn the forecast profits, and ultimately the amount of earn-out the seller receives.
Both these extremes can be protected against by appropriate contracts and, whether buying or selling, experienced legal advisers on both sides are a prerequisite to ensure a fair and legally enforceable end result is achieved.
John Rutherford is a partner and head of McGrigors UK corporate team.