The oilfield services sector could see an uptick in M&A activity over the next 18 months as businesses move out of survival mode and look to the future, according to professional services firm KPMG.
With fragile stability returning to oilfield spend and activity, 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, KPMG said.
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, according to KPMG.
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.
“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 stabilized their trading at today’s lower level are beginning to think strategically again and looking ahead three to five years,” Alan Kennedy, KPMG partner and UK head of oilfield services, said.
“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,” Kennedy added.
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