Merger and acquisitions outlook

Appetite for M&A declines

Amid uncertainty about the global economic outlook, oil and gas companies are increasingly wary of acquisitions and their perceived risks.

Just 28% of respondents now expect to pursue acquisitions over the next 12 months, down from 31% in April and 48% a year ago. It is not just a lack of confidence in the business environment that is holding companies back — many are also concerned about the gap between their valuation of potential acquisitions and the prices sought by sellers.

27% of oil and gas respondents expect the price/valuation of M&A assets to decrease over the next 12 months; this is up sharply from April 2012.

For many companies, the intent around M&A has declined. Five years after the financial crisis, many executives are still waiting for a sustained recovery before taking action.

Do you expect your company to pursue acquisitions in the next 12 months?

Notably, however, oil and gas respondents are more optimistic about the acquisition environment than is the global sample, and oil and gas respondents generally had more confidence than the broader sample in terms of positive views on the number of deals, the quality of deals, and the likelihood of closing deals. Nevertheless, confidence levels are generally declining, both for oil and gas respondents as well as for the broader sample.

What are the main drivers of your company’s planned acquisition activity?

Among those oil and gas companies that do expect to engage in M&A, deal sizes remain fairly small, reflecting an ongoing aversion to risky, transformational transactions. More than 81% say that they will do deals worth less than US$500 million, and 38% say they will do deals under US$50 million. This suggests that, where deals are being considered, they will extend existing businesses and fill strategic gaps, deals that are typically termed bolt-on acquisitions.

Destinations for outbound investment

Top investment destinations, according to our respondents span developed and emerging markets, as companies seek to increase their exposure to resources and assets that offer better growth opportunities. There is increasing evidence that developed markets are regaining momentum as top investment destinations.

In terms of geographic focus for M&A activity, the oil and gas sample of companies rated the US, Canada, Brazil, China, and the UK as the top five likely destinations for outbound investment

Divesting activity shifts down as well

There has also been a sharp decline in the number of companies planning to make divestments in the next 12 months, particularly so in the case of oil and gas respondents. Many companies have gone through the process of optimizing their portfolios and offloading those assets that did not fit their overall strategic objectives.

Do you expect your company to divest assets in the next 12 months?

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