M&A likely in oil & gas space

BY Richard Summerfield               

Over half of the companies operating in the oil & gas sector are contemplating acquisitions in the coming 12 months, according to a new report from EY.

The report – EY’s 'Oil and Gas Capital Confidence Barometer' – which surveyed 112 oil & gas company executives, notes that the industry is in the process of rebounding from the adverse effects of the recent sharp decline in oil prices. As a result, 56 percent of surveyed firms believe they will “actively pursue acquisitions” over the next 12 months – more than double the number of executives who responded similarly in October 2014.

"For the first time in five years, more than half our respondents are planning acquisitions in the next 12 months, as deal pipelines continue to expand," said EY global vice chair for transaction advisory services Pip McCrostie. However, despite the recent acquisition of BG Group by Royal Dutch Shell, the main focus for acquiring companies will not be big ticket mega-mergers. Indeed, most acquiring companies – 70 percent of respondents – are likely to focus on mid-market transactions, with the majority of deals expected to be pitched at around $250m. A further 24 percent of surveyed firms are planning acquisitions of between $251m and $1bn, while just 4 percent of companies are believed to be considering deals worth in excess of $1bn.

The survey was conducted in February and March when Brent crude price averaged below $60 per barrel; accordingly, many of those executives surveyed felt that an improvement in the oil & gas space was inevitable. Ninety-nine percent of respondents felt that the overall deal market would improve or remain stable over the next 12 months. A further 97 percent expressed similar confidence in the global economy.

Despite the resurgence of confidence in the oil & gas sector’s deal environment, residual macroeconomic concerns may still curtail some M&A activity. Increasing volatility in commodities and currencies, as well as persistent disruptive geopolitical influences, cast a potential shadow over future deal activity.  In order to mitigate these risks, firms in the oil & gas space will attempt to cut costs and achieve synergies while continuing to look for opportunistic acquisitions.

Report: Oil and Gas Capital Confidence Barometer

Q1 M&A activity up – Pitchbook

BY Richard Summerfield

2014 was a significant year for M&A activity. As the global economy shrugged off the stymieing effects of the previous decade's financial crisis, M&A returned to the top of the agenda in many corporate boardrooms. Accordingly, 2014 saw a considerable upswing in both deal value and volume.

As 2015 unfolds, it would appear that the substantial momentum witnessed last year has continued into the first quarter of 2015, as noted in Pitchbook's 2Q 2015 M&A Report

According to the report, M&A activity in Europe and the US in the first quarter of 2015 performed admirably, recording an 8 percent increase in deal flow and a 12 percent increase in aggregate deal value on a quarterly basis. The combined value of completed Q4 2014 and Q1 2015 deals approached $1 trillion. As a result of the uptick in M&A activity over the last year and a quarter, there is considerable optimism in boardrooms globally.

In Q1, 4220 deals were completed for a value of $492bn, a 12 percent increase over a strong Q4 2014 and a year on year leap of 74 percent. Throughout Q1, the healthcare sector contributed over $200bn worth of activity to the quarter’s total, accounting for 41 percent of all activity in the period.

While big ticket M&A transactions returned to the fore in 2014, many of the 2015 deals announced to date can be classified as ‘mega mergers’. According to Pitchbook’s data the number of Q1 deals recorded in excess of $5bn has already more than equalled the total of the first three quarters of 2014. As such, mega mergers are expected to remain a key feature of M&A activity this year. Acatvis’ $70.5bn acquisition of rival firm Allergan was one of the most notable deals executed in Q1, and there is considerable expectation that deals of that size might soon become the rule, not the exception.

Report: 2Q 2015 M&A Report

2015 EMEA private equity deal count down but capital investment up

BY Fraser Tennant

Q1 2015 saw a 34 percent increase in the capital invested in the Europe, Middle East and Africa (EMEA) private equity market, according to S&P Capital IQ’s new EMEA Private Equity Market Snapshot.

The report's headline is that EMEA as a global private equity investment destination, although down in Q1 2015 in terms of deal count compared to Q1 2014, was up in aggregate transaction values - €41bn deployed to EMEA located target companies this year across 1020 new deals, compared to €30.6bn last year across 1205 deals.

“EMEA attracted 494 new deals putting €2.1bn to work. This represented a 10 percent increase in capital invested but a 15 percent reduction in deal count from 579 new deals last year", notes the report.

 “The data suggests that the venture capital world is increasingly concentrating on a tighter set of potential companies but deploying more capital across individual deals in order to maximise the growth potential of the selected few.”

The report also found that, on the exit side, Q1 2015 recorded 330 divestments for global private equity firms realising €42.9bn, an increase of 17 percent on Q1 2014’s €36.8bn across 396 exits.

And when considering the wider global political discourse, the report examines investments made by global private equity firms into EMEA-headquartered target companies as opposed to tax haven headquartered firms, highlighting that most of the activity originated by the latter in the past 10 years benefited Northern and Western Europe.

“Investments in the financial sector, specifically real estate operating companies, have seen the biggest quarter-on-quarter increase in terms of aggregate capital deployed with €15bn invested in Q1 2015 compared to €5.6bn in Q1 2014”, says the report.

“A significant proportion of the €15bn was explained by the largest deal of Q1 2015 which saw Qatar Holding and Brookfield Property Partners acquire the remaining 71.4 percent of Songbird Estates PLC, the parent company of Canary Wharf Group, for €8.7bn.”

The report also considers the current status of the oil & gas sector, noting that despite the overall health of EMEA private equity activity seen so far in 2015, it remains to be seen whether recent investment in the North Sea will be enough to kick start significant dealmaking activity.

Report: EMEA Private Equity: Market Snapshot

Effective risk management enables faster revenue growth, claims new survey

BY Fraser Tennant

Companies that effectively manage their business risks proceed to an upsurge in performance and faster revenue growth, according to the results of a new PwC annual risk survey.

In ‘Risk in Review: Decoding uncertainty, delivering value’ (April 2015), over 1200 global business executives and leaders share their views on how they assess the risks they face in their markets – the risk climate, their companies’ risk management practices and the key risks, both now and in future.

The survey found that: (i) 73 percent of respondents agreed that risks are increasing, particularly in the areas of regulatory complexity and data security and privacy; and (ii) 76 percent of respondents expect revenues to rise over the next two years and are undertaking a variety of strategies to make that growth happen.

“Integrating risk management into the life cycle of your business gives you the opportunity to do two things," suggests Dean Simone, a PwC risk assurance leader. “It helps you understand the implication of risk at the point of decision rather than afterward and it allows you to move very quickly and confidently, knowing that you’ve anticipated the risk and are less likely to have made a mistake that could slow you down.”

The importance to companies of being able to anticipate risk is highlighted by the survey’s focus on the benefits of having a dedicated risk management leader available to prevent expensive misjudgements, enable fast decision-making and drive efficiency. The survey exemplifies this importance when it states that only 12 percent of respondents demonstrated the qualities of "true risk management leaders".

One such risk management leader is Ryan Zanin, chief risk officer at GE Capital. He said: “We understand that both companies and economies run through cycles and you better be prepared to live through a down cycle and weather the storm. Part of our job is to make sure that people understand the choices in the harsh light of day, that there are really no free risks.”

Fellow survey respondent, IBM chief risk officer Luis Custodio, said: “One of the biggest risks is missing opportunities if you are not agile and fast. We do not slow down our business units. The last thing that business leaders want is bureaucracy. Risk management is viewed as an enabler and a support function to the business."

Report: Risk in review: Decoding uncertainty, delivering value

Comcast abandons $45bn mega merger

BY Richard Summerfield

It was supposed to close at the end of 2014, and was the key cog in the rapidly consolidating US television market, yet the $45bn merger between telecommunications giants Time Warner Cable and Comcast was cancelled in late April, citing rapidly mounting regulatory concerns.

The deal, originally announced in February 2014, would have formed a cable and broadband juggernaut, combining the two largest US companies in the space. The merged entity would have controlled 57 percent of the US broadband market and just under 30 percent of pay television service. Accordingly, from the outset there was speculation that the deal would attract the attention of antitrust authorities in the US.

Publicly,  both firms were confident that the deal would go ahead, and gave assurances that competition in the US would remain largely unaffected. Comcast argued that the companies served different enough markets that customers would not notice a drop in competition. The firm also agreed to spin off some Time Warner Cable subscribers to keep its share of the US cable TV market below 30 percent.

Yet despite Comcast’s protestations, the longer the deal dragged on, the louder the voices of dissent became. A month following the announcement of the transaction, the Department of Justice launched an investigation into the deal. The proposed merger also attracted the ire of a number of politicians and consumer groups. By mid April, both the Justice Department and the Federal Communications Commission indicated that they would move to block the deal should Comcast continue to pursue the transaction. In light of the mounting regulatory opposition, Comcast decided to walk away. "Today, we move on," noted Brian Roberts, Comcast's chief executive, in a statement. "Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn't agree, we could walk away."

Following the withdrawal of the bid, FCC chair Tom Wheeler said the deal would have threatened the emerging ‘over the top’ and streaming services which are changing the nature of consumers’ interaction with media and entertainment. Mr Wheeler stated that "Comcast and Time Warner Cable's decision to end Comcast's proposed acquisition of Time Warner Cable is in the best interests of consumers. The proposed transaction would have created a company with the most broadband and video subscribers in the nation alongside the ownership of significant programming interests.”

The collapse of the deal will have an impact on the wider communications sector. Regional cable operator Charter Communications Inc was due to acquire a number of Time Warner Cable markets which Comcast was planning to divest following the closure. Charter also has a $10.4bn deal for Bright House Networks in place which was reliant on the completion of the Comcast deal. Whether those deals go ahead now remains to be seen, however Time Warner is believed to be open to a potential merger with Charter, two years after the smaller firm launched an unsolicited and acrimonious $37.3bn bid for Time Warner.

News: Comcast drops Time Warner Cable bid after antitrust pressure