Lower commodity prices reduce size and volume of energy M&A in 2015

Lower prices for crude oil and natural gas reduced the average deal size and the volume of mergers and acquisitions in the oil and gas industry in 2015. According to a report from Ernst & Young, there were 382 U.S. oil and gas deals in 2015, down 23.8% from 2014, while values fell by $188.7 billion, down 31.7% from last year.

Despite the lower levels and values of M&A deals in 2015 compared to 2014 levels, EY anticipates that M&A will increase in 2016 as lower prices force consolidation. “Barring any geopolitical events, oil prices will continue to be low,” said Vance Scott, EY Americas Oil and Gas Leader. “This price distress will eventually force M&A activity, particularly before the spring borrowing base redeterminations.”

“There will likely be more asset divestitures and stock-for-stock deals in 2016 as we will see organizations that are highly leveraged but have good offerings looking to do deals with businesses that have lower leverage,” said Scott. “Overall, there will be an increase in creative deals that seek to satisfy debt holders and reduce debt from the balance sheet as the challenging conditions persist.”

Look for cross-sector oil & gas M&A as companies look to acquire technology advantages

Scott also anticipates that cross-sector M&A will likely increase in 2016 as well. Oil and gas companies will look to companies and assets that offer technological advantages they can use to lower costs and increase productivity.

2015’s $2.3 trillion overall U.S. M&A deal value expected to carry into 2016

While the oil and gas sector saw both lower volumes and values of M&A deals, the overall picture for U.S. M&A was brighter. U.S. deal value rose 55.1% compared to 2014, reaching a record $2.3 trillion, despite lower overall volume of deals.  Volumes declined 3.2% in 2015 to 10,845 compared to 11,198 the year before.

The increase in deal volume was driven in large part by an increase of megadeals, or those that were valued at $10 billion or more. In 2015, 47 megadeals took place, up 235% from 2014. EY also noted an increase in deals valued at $1-$10 billion increased 9% as well, with the U.S. being the target for most M&A in the last year.

“While the top megadeals garnered most of the attention, there was robust activity in the upper-middle market too and that is expected to continue in 2016,” said Rich Jeanneret, EY Americas vice chair, transaction advisory services. “The U.S. will remain a hotbed for sustainable M&A activity in the immediate term, especially as financial markets continue to reward dealmaking. An overwhelming 74% of US executives expect to do deals in 2016.”

57% of U.S. companies have 3 or more deals currently planned – up 47% from 6 months ago

EY reported that 57% of U.S. companies have three or more deals currently planned, compared to just 10% of companies six months ago.

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