The key driver of merger and acquisition activity in the oil and gas sector is the relative strength or weakness of commodity prices.
Oil prices were surprisingly robust last year, given the spectre of a double-dip recession and eurozone implosion, and consequently the year was much better than most people would have expected.
As a leading corporate finance adviser in the energy field, our transaction statistics give a reasonable idea of overall activity and, looking back, I would judge it as a strong but not stellar year. Overall in 2011, Simmons completed 46 M&A transactions and 16 equity and debt offerings.
Our Aberdeen team completed 22 transactions, all of which were in the oil service sector.
There were four oil service deals, which stand out because of their size – the sale of Global Industries to Technip, Hunting’s acquisition of Titan Specialities, the sale of T3 Energy Services to Robbins & Myers and the acquisition of RBG by Stork Technical Services.
The other oil service transactions were mainly in the £6million to £157million range, with a few technology transactions – notably the sales of X3M International to Aker Solutions, Twister to UOP and ThruBit Logging Solution to Schlumberger – making up the balance.
Looking at trends that emerged from 2011 and those that will continue to feature in 2012, I would say that the exploitation of unconventional oil and gas reserves has been the single biggest factor. This has transformed the US land activity levels and, with it, related oil service M&A activity. It is just a matter of time before this is replicated across other parts of the world, including the UK and Europe.
The other trend is the emergence of multiple new trade/industrial buyers who have gained an appreciation of the future opportunities in the oil and gas services sector.
Most of these buyers are based outside the UK and would not have featured on our buyer lists two or three years ago. However, the extent of their appetite is such that they are now out-bidding the private equity buyer community, which historically could be relied upon to buy virtually any oil service business of scale.
The bar has been raised considerably in terms of pricing – for example, GE’s acquisition of Wellstream Holdings for nearly £800million and Clyde Union Pumps was sold to SPX Corporation for £750million.
The message to business owners is that realising the maximum value for their oil service business is going to depend on the ability of their advisers to evaluate the most appropriate exit strategy.
This now involves identifying the entire universe of potential buyers, most of whom are off the radar screen, rather than accepting that a sale process will be limited to private equity buyers who are constrained by the amount of debt available, and the requirement for these buyers of visibility on a two-and-a-half or three-times money multiple return.
Simmons expects oil prices to continue to be resilient in 2012 and exploration and production spending to rise by 10% to £376billion.
This year is shaping up to be a better year than 2011 in terms of both the number of transactions in play and pricing. This does, however, assume that 2012 will be benign in terms of the absence of macroeconomic and political trauma.