Bryce Linsenmayer and Rikiya Thomas, K&L Gates LLP, Houston, Austin
Friday's surprisingly calamitous vote by the UK electorate to exit the EU could present buying opportunities for international investors across the globe. The British pound is currently trading at exchange rates not seen in the last 40 years. In addition, many financial institutions are for the first time in recent memory seriously questioning their investments in the UK. Those of us serving the oil and gas business, and with long enough memories, know that inflection points, such as the recent drop in commodity prices, can provide opportunities for investment. The environment created by this instability in the UK is likely to mean that it's time for investors interested in the oil and gas business and related service sectors to go shopping.
If so, it would be good for these cross-border investors to remember some core fundamentals:
Buy on the dips
Taking advantage of buying opportunities when prices are low is a tried-and-true acquisition and investment strategy, and the current upheaval in Britain may give ample opportunity to find more willing sellers. If people panic and look to liquidate positions in assets with a nexus to the UK, those assets may be located not just in the UK or across the globe. Since much of the funding for oil and gas and other energy projects has historically come directly or indirectly through the London capital markets, as those funding sources come under pressure, their asset portfolios across the world from the US and Canada to the emerging markets of Asia, Africa, the Middle East and Latin America, may become acquisition targets, particularly for buyers investing with stronger currencies.
Cooler heads will likely prevail
While the trend may be towards increased acquisition and disposition transactions, it may be hard to time this market, particularly in the early days. Despite the dire consequences that Brexit may pose for UK citizens, London remains the world's leading financial center. There are already a number of movements underway that could lead to this issue being revisited with the British electorate, many of whom regret their vote. In addition, it will be at least two (2) years until an exit from the EU is possible. That's an incredibly long period of time, during which a number of factors may change dramatically. Given all of those variables, it makes little sense to change short-term investment and acquisition strategies involving UK-based partners or UK assets. However, many may take hasty action to divest holdings, and that provides opportunities for those willing to bet on the long-term viability of Great Britain.
Globalization is a force, not a fad
All of the global market movements since the Brexit vote indicate with absolute clarity how intertwined the world's economic markets truly are. Even though citizens of England voted by a narrow majority to leave the EU, the majority votes in Scotland and Northern Ireland were overwhelmingly in favor of staying in the EU. This may raise significant questions regarding the U.K.'s ability to remain united. Whether they do or not, they are all, individually or separately, integral parts of the global oil and gas economy.
Markets despise uncertainty
We have seen that over and over again, but the oil and gas business and related service and supply sectors have become increasingly accustomed to that uncertainty. In this case, it may be a huge advantage to move when others have frozen in place. I'm finding many clients in the energy and energy service sectors looking more actively than ever for deals. There is a tremendous amount of capital out there, and whether it lands in the UK, or looks to safe havens like the US, it is moving and providing opportunities.
About the authors
Bryce Linsenmayer is a corporate and securities partner in the Houston and Austin offices of K&L Gates LLP, an international law firm with 45 offices in five continents. Linsenmayer focuses his practice on US and cross-border M&A, financings and securities offerings.
Rikiya Thomas is an associate in the Houston office of K&L Gates LLP.