Successful M&A in volatile markets

March 2015
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.
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
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
Stressed scenario – who is in control, the
creditors or the equity?
Geographic market exposure
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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,
may well present opportunities for well capitalised and fleet of
foot purchasers.
Considerations in non-core disposal situations
Stand alone
plan and
& suppliers
TUPE issues
& pensions
Deal structure
& pricing
Drivers of non-core disposals
Non-core disposals typically involve a division, or part of
businesses being sold to other trade buyers or private equity.
Drivers for these transactions will vary but will often include one
or a combination of the following:
Financial underperformance and/or the need to de-lever to
satisfy funders more nervous about the sector
The need to reduce pressures on management time by
simplifying the business
The ability to cut costs by simplifying the supply chain
through acquisitions of suppliers and customers
The requirement to address over capacity in particular sub
sectors of the supply chain
A method by which to access synergies or efficiency savings
– the Wood Report’s collaboration agenda may well result in
corporate mergers
Simplification of ownership and operating structures for
infrastructure and oilfields
New buyers entering the sector, focusing on the ability to
acquire more challenged assets at a low point in the cycle
and then realise value as the cycle turns
By its nature, a non – core disposal is often more complex than
the sale of a fully standalone business. This complexity may
mean additional costs and/or transaction risks which need to be
appropriately managed.
IT & other
Market impact
& City Code
Case study
Project Tobasco
Our client was a large listed group who wanted to dispose
of a non–core subsidiary focused on testing of industrial
materials and engineered components within the Oil &
Gas sector.
Our approach
We provided M&A sell-side advice to help the client
successfully sell a non-core subsidiary to a strategic trade
Assisting management in their preparation of a
comprehensive stand alone financial and operational
business plan which allowed bidders to focus on the
upside potential and synergies available.
“At KPMG we have the experience to
understand both the vendor and
buyer perspectives and how this may
influence their respective opinions on
value for a transaction’’
Contact for Oil & Gas M&A
Dane Houlahan
T: +44 (0) 1224 416 985
E: [email protected]
We successfully delivered a transaction that exceeded the
clients value expectations.
Business disruption was minimised with the overall
transaction being completed ahead of client schedule and
within 6 months of appointment.
© 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.
The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks
of KPMG International.
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