Successful M&A in volatile markets - KPMG

picture of medium term maintainable earnings be established. Strategic fit, synergies and longer term potential in the market. Stressed scenario – who is in ...
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Successful M&A in volatile markets M&A remains on the agenda for many companies but the drivers may be different than in recent times. Volatility in the oil price is impacting companies differently depending on where they operate in the supply chain. This creates stress but also opportunities in the marketplace for M&A activity. We will continue to see deals but the transaction dynamics in many situations will be different to what was seen in 2013 and 2014.

Drivers for M&A activity

Cost pressure in the industry will act as a driver for further industry consolidation as we have already seen with a number of large high profile mergers being pursued or rumoured, both on the Oilfield services and E&P side of the O&G market. Non-core disposals will be on the agenda for some of the larger groups as they look to rationalise their portfolios. Some of the listed players will look to raise capital and undertake corporate actions which are likely to improve share price performance. We will continue to see private company M&A activity although agreeing pricing for these deals will be more challenging in certain situations.

“Although many businesses in the sector are well placed to withstand a lower oil price environment and may have the ability to flex cost structure, we expect to see some distressed opportunities come to market. ’’ This may also present buying opportunities for well capitalised corporates and private equity who are prepared to take a longer term view on the sector. Factors to consider in unlocking transactions in this environment include:

Case study Project Neptune 

Our client was a large privately owned consultancy group focused on the O&G sector who wanted to acquire a financially challenged engineering business operating predominately in the UK and Asia.

The target was distressed and the appointment of an administrator was imminent, who would be required to run a competitive process.

Our approach 

We provided M&A buy-side advice to help the client successfully acquire the company .

The deal team comprised both M&A and Insolvency specialists who were able to provide insight into how an Administrator was likely to behave and how best to position the clients bid.

Results 

The client was successful in a competitive situation.

Business disruption was minimised with the overall transaction being completed in less than three weeks.

The business has been a successful acquisition for the client.

Drivers for sale – normal sale vs. stressed vs. distressed situations?

Financial performance – can an accurate picture of medium term maintainable earnings be established

Price expectations – can a price be agreed?

Strategic fit, synergies and longer term potential in the market

Impact of oil price on the specific industry subsector vertical in which the buyer and seller operate

Stressed scenario – who is in control, the creditors or the equity?

Geographic market exposure © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the United Kingdom.

Non-core disposals

Non core disposals can be value accretive for both buyers and sellers

In the oil sector at the moment, the capital markets are keen to see public companies take action to address market challenges. Non-core operations may be underperforming or not being appropriately valued by the equity markets. A disposal may present an opportunity to raise cash, improve share price performance and/or access synergy value. A degree of stress emerging in certain verticals of the sector