M&A activity in the Oilfield Services industry expected to increase over next 12 to 24 months
LONDON, 31 AUGUST 2012: A newly released report, Ernst & Young Dynamic Dealmaking in Oilfield Services, by Ernst & Young and mergermarket indicates that the vast majority of the survey respondents (84%) are expecting an increase in M&A and none expect a decrease.
Nearly three quarters of the fifty respondents, who encompass industry executives and private equity practitioners in the oilfield services sector, plan to make acquisitions in the next 12 to 24 months with companies based in North America (80%) expecting to lead all regions in activity, followed by Asia-Pacific (52%), Western Europe (26%), Eastern Europe (14%) and Africa (12%).
Multiple drivers explain the increase in appetite for M&A. Most respondents (88%) cited access to new markets and customers as the primary driver of acquisitions, while vertical integration to extend services and access to new technology followed closely. Oilfield Services (OFS) companies will also look for opportunities to broaden and expand their service offerings.
54% of respondents cited changes in regulatory framework as the biggest challenge to executing their business strategy, with the second greatest challenge (50%) identified as economic and commodity price uncertainty. One fifth of respondents say political upheaval in major oil provinces presents the biggest macroeconomic threat, while an additional 20% singled out the possibility of resource nationalism as the primary challenge.
Andy Brogan, Global Transactions Advisory Services Leader for Oil & Gas says “The energy sector faces multiple pressures requiring companies to remain nimble and proactive in anticipating and adapting to the changing environment. The ability to integrate will be vital to success in the emerging markets while balancing the ability to deliver cost synergies in the developing markets. Through M&A and joint ventures, OFS companies can minimize risk and maximize earning potential.”
The uncertain business environment has created considerable risk within the OFS sector, causing possible obstacles to companies’ financing. Despite the short-term difficulties, just over half of the respondents expect OFS companies to have greater access to equity over the next one to two years.
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