Energy services M&As to slow down, KPMG says
Volatile oil prices will curb the urge to merge and acquire over the next 12 months
Anyone expecting the next 12 months to be a busy time for mergers and acquisitions in Western Canada’s energy services sector could be disappointed.
That’s the view of Rhys Renouf, national leader for energy services with professional services firm KPMG. In a June update on the sector, Renouf predicted there will be 35 transactions over the next 12 months – eight less than there was between April 2011-April 2012.
M&As are an indication of how “hot” a sector is. When there are a lot of them, it’s a sign that there is a lot going on in the oil patch, and newer (often bigger) players try to get a piece of the action or current players gobble up smaller companies to grow their businesses and increase market share.
And while there is little doubt the oil and gas industry is still a busy place in Western Canada, Renouf says the zeal for deals in the energy services sector will cool off if natural gas prices remain low and oil prices continue to stay below the US$90-100 mark.
One area where Renouf expects the interest to remain high is the oil sands. “Those multi-year projects attract investors from around the globe,” he says.
Case in point: the May deal that saw San Francisco-based URS Corp. buy Flint Energy Services for $1.462 billion. It gives URS a significant toehold in Alberta’s oil sands, where Flint has secured plenty of work in recent years.
Renouf also says that while the volume of deals will go down, the value of them will be high. He’s predicting the 35 deals will total $4.5 billion in aggregate value.
Of course, a lot can change in the oil and gas industry in a short period of time. The bear run of late on oil prices isn’t good news, but it could spur on more M&As than KPMG is predicting. “It could have a positive impact, ” Renouf says. “The leaders could take out the laggards to protect market share and pricing.”