KPMG: Modest upturn in oilfield services M&A in 2017, 2018

Mergers and acquisitions (M&A) could become a greater feature of the oilfield services landscape in the next 18 months as businesses move out of survival mode and look to the future, according to KPMG.

Oilfield services companies that have adapted their businesses during the downturn and have relatively stable trading patterns are beginning to think strategically about how to position themselves for future growth opportunities. With fragile stability returning to oilfield spend and activity, KPMG expects to see a modest revival in M&A activity in the service sector through 2017 and 2018.

These were the key findings from responses at KPMG’s recent M&A seminar in Aberdeen.

Short to medium term deal activity will be driven by technology and solutions, rather than capacity requirements; and the relative weakness of sterling should provide a boost to inward investment in the UK, although most companies within the industry have global outlooks.

Strategic acquisitions and more innovative deal structuring are expected to remain features of deals in the sector for some time while private equity is still seen as the likeliest source of capital for growth.

The trading environment remains mixed for companies in oilfield services and there will be different lead in times for recovery for its various subsectors, depending on their position in the life cycle chain.

Alan Kennedy, KPMG partner and UK head of oilfield services, said that the growing sentiment in the sector was that the market had stopped getting worse, prompting companies to start looking ahead to new opportunities.

“There is a growing view that things have stopped getting worse, at least in some areas of the sector. Companies that are in reasonable shape in terms of their balance sheets, have sorted out their finances and have stabilised their trading at today’s lower level are beginning to think strategically again and looking ahead three to five years. M&A growth through acquisition is a big tool in the box for them when there’s limited organic growth to be achieved through new projects in the current market,” said Kennedy.

“Interestingly, attendees at our seminar still see private equity as the likeliest source of capital for growth in the short to medium term and we expect to see North American bidders active in the UK domestic market, capitalising on the weakness of sterling. An increasing number of companies in the sector are saying they anticipate being involved in M&A activity in the next 18 months.

“The market themes that we expect to see through 2017 and 2018 are global integration of services over the life of field, diversification into downstream and adjacent space, non-cash mergers and private deals, as opposed to auctions. The short and long term value of sterling is also going to play a part in the UK market but the fact remains that the number and size of successful deals in the past two years have been inconsistent with the capital available to deploy,” said Kennedy.

Dane Houlahan, corporate finance partner with KPMG, added: “Non-traditional buyers are well capitalised and well positioned to make deals in this market but the execution of transactions and investments is not without problems. Process delays and misalignment of strategic goals and price expectations are real hurdles and the ability to assess and manage risk will be critical in a market that remains fragile.”

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