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Strategies & Market Trends : Speculating in Takeover Targets
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From: richardred11/15/2013 1:47:25 AM
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Oil industry jobs, dealmaking expected to rise
Posted on November 14, 2013 at 1:21 pm by Collin Eaton in Deals, Jobs

(AP file photo/Reed Saxon)

HOUSTON — After two years of steady decline, hunger for oil and gas deals is picking up as economic uncertainties clear up around the world, according to an EY survey of industry executives released Thursday.

The percentage of oil and gas executives who expect to make a deal over the next 12 months jumped to 39 percent in October, up from 28 percent a year ago. While that’s still under the 48 percent peak the industry saw in October 2011, plans for oil and gas deals outpaced all but the industrial products and life sciences industries last month, according to the EY report.

EY, the new global brand for financial services provider Ernst & Young, surveyed 169 oil and gas executives in September for its Capital Confidence Barometer, which the firm has published for four years. More than 1,600 executives across a dozen industries responded to EY’s survey.

Renewed confidence in the global economy and a growing number of high-quality assets on the sales block are driving the industry’s instinct to acquire, and more potential buyers and sellers believe they can meet at a fair price and close a deal, the firm reported.

Help Wanted

As executives become more bullish on the global economy, 57 percent of the survey’s oil and gas respondents said they plan to boost hiring in the next 12 months, up from 34 percent in October 2012.

The industry’s expectations for increased economic growth jumped from 46 percent last year to 71 percent in October, but other measures, including confidence in stock market valuations and the market’s stability, dipped slightly. Views on corporate earnings stayed level with last year, with 36 percent of respondents expecting margins to improve.

Organic growth, the executives say, comes mostly (38 percent) from improving core products and focusing on existing markets, but 25 percent say advances in technology also have enabled companies to develop new products and markets, according to EY.

Cat and Mouse

Buyers told EY that market share gains in existing footprints were the main attraction to scooping up more assets, signaling an affinity for “bolt-on” acquisitions that fill strategic gaps in companies’ existing businesses. Seventy-five percent of the firm’s oil and gas sample said the number of good buys on the market should increase over the next 12 months, up from 44 percent last year.

Forty-six percent of the respondents said they see asset prices going up over the next 12 months, up from 33 percent last year, as sellers post more attractive targets. And more players — 21 percent, up from 12 percent last year — say they expect to see more large deals over $500 million in value.

The increase in price tags comes as companies use more cash to finance deals, a measure to offset the high debt used in building shale positions. The percentage of executives who see cash as the source of deal funding increased from 40 percent last year to 48 percent in October, as shareholders and management teams become more concerned about leveraging up.

After a significant ramp up in debt on the books, more oil and gas companies, EY reported, are focused on reducing interest costs and extending debt maturities.
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