M&A deals drop in oil & gas space

BY Richard Summerfield

Strong headwinds in the oil & gas markets and wider global economic uncertainty have made a significant impact on deal making over the last two years. Indeed, mergers and acquisitions activity in the US oil & gas industry plummeted to its lowest fourth quarter period in five years, according to a new report from PwC.

PwC’s Q4 Oil & Gas Deals Analysis noted that Q4 2015 saw 42 deals in the oil & gas space with values of $50m and above. Those deals recorded in the final quarter of last year were worth $31.6bn. The previous year saw 70 deals worth $103.4bn during the same period. 2015 saw a 69 percent decline in total deal value year on year.

Doug Meier, PwC’s US Oil & Gas Sector Deals Leader, said, “Accelerating declines in oil and gas prices coupled with the closing of the capital markets for oil and gas companies during the second half of 2015 drove management teams to focus on cash preservation. As oil prices stay lower for longer, cash flow will stay constrained resulting in companies operating in survival mode with a focus on realigning their strategies and business models. This internal focus resulted in a steady decline in oil and gas deal activity leading to the lowest fourth quarter in five years, a period that is typically strong for oil and gas deals.

"While the headlines appear depressing, deal-making opportunities exist for companies with dry powder and who are willing to use their equity as currency for doing deals. Looking at the subsectors, midstream companies, including MLPs, were hit with a devastating left-right combination of dramatically lower stock (unit) prices and closed capital markets, resulting in a precipitous decline in the fourth quarter midstream deal activity," he added.

The difficulties seen in deal making in the US in Q4 were experienced the world over last year, according to PwC’s data. In 2015, worldwide power and renewables deal value reached $199bn, a decline of 16 percent from the $236.2bn recorded in 2014. However, in spite of this decline, renewable activity boomed in 2015, nearly doubling year on year from $28.3bn in 2014 to $55.3bn in 2015. Renewables’ share of deal value rose from12 percent in 2014 to 28 percent in 2015.

Europe and the Asia-Pacific region were the most popular locations in terms of number, by both bidder and target in 2015, with 313 and 318 deals in each region respectively. The US led the field on total deal value.

Looking ahead, PwC expects Europe to be a strong focus of activity in 2016 as the region continues to provide the highest volume of global power and renewable deal activity, although deal numbers and value dipped in 2015.

Report: PwC’s Q4 Oil & Gas Deals Analysis

Fifth column risks rise - EY

BY Richard Summerfield

Cyber breaches and the threat posed by malicious insiders are two of the biggest risks driving investment in global forensic data analytics (FDA), according a new report from EY.

EY's 2016 global forensic data analytics survey, ‘Shifting into high gear: mitigating risks and demonstrating returns’, notes that insider threats  in particular offer the biggest risk to organisations becoming a victim of fraud, corruption or data loss. The most prominent forms of inside threat, according to respondents, include malicious insiders stealing, manipulating or destroying data.

The survey questioned 665 executives globally across a wide range of industries including the financial services, life sciences, manufacturing and power and utilities sectors. From the available data, it is clear that concerns around cyber security are helping to crystalise opinions across industry boundaries; indeed, companies are turning to FDA to try to counteract cyber threats.

Companies have been spurred into action by increasing activity among cyber criminals as well as aggressive regulatory pressure. Rising demands from both governmental bodies and the general public is driving much of the investment in FDA, notes EY. Forty-three percent of respondents claimed regulatory pressure was one of the main driving forces behind their FDA investment, second only to the burgeoning threat posed by cyber crime.

Of those executives surveyed, 44 percent reported an increasing level of concern over “bribery and corruption risk” while 62 percent noted an increasing concern over  “cyber breach or insider threat”.

Given the recent spate of major, headline grabbing cyber attacks, it is little surprise that breaches are weighing heavily on executive minds the world over. As companies take steps to protect their physical and digital assets from internal and external threats, the FDA will continue to play an important role in helping them navigate such risks. Given the size of the fines and sanctions imposed on companies and individuals in recent years, c-suites are understandably concerned about regulatory enforcement around cyber risk.

With the c-suite increasingly worried about the threat of cyber risk and malicious internal actors

Many companies have been pouring considerable resources into bolstering their FDA efforts in recent years. Spend is expected to continue throughout 2016. In 2014, 64 percent of those surveyed believed that their investment in FDA was adequate, while in the latest survey only 55 percent felt the same. Furthermore, three out of five respondents said they intend to increase their FDA spend over the next two years.

Report: Shifting into high gear: mitigating risks and demonstrating returns

Bankruptcy snapshot reveals US filings up 46 percent in 2015

BY Fraser Tennant

The US business bankruptcy landscape saw bankruptcy filings increase by 46 percent in 2015 — due primarily to a challenging energy sector environment — according to a report released this week by BankruptcyData.com, a leading provider of information on companies in bankruptcy.

In the ‘Q4 2015 Business Bankruptcy Filings Report’, which breaks down business bankruptcy filings into factors such as industry, sales volume, company size, liability and asset ranges and public and private filings, a total of 79 publicly traded companies (with $81bn in combined pre-petition assets) are revealed to have filed for Chapter 7 or Chapter 11 protection in 2015.

Furthermore, eight of the 10 largest Chapter 11 filings were initiated by companies operating in the oil and gas, mining and related sectors — a substantial 51 percent of the total public bankruptcies seen in 2015. Overall, 40 of the 79 filings involved oil and gas and mining companies.

However, despite this significant uptick, the total assets entering Chapter 11 in 2015 increased only marginally in comparison with 2014; due, in the main, to the $40bn bankruptcy of Energy Future Holdings.

The analysis also shows that six of the publicly traded filings have assets above $3bn (compared to two filings the previous year) while there were 19 bankruptcies with assets over $1bn (compared to 11 the year before).

Looking forward to what 2016 has in store for the business bankruptcy landscape, many analysts, including distressed securities investor George Putnam, expect to see a further increase in activity in US bankruptcy courts.

"There could be a number of additional companies getting ready to file in 2016," said Mr Putnam. “The face amount of bonds that have not yet defaulted but are trading below 50 cents on the dollar jumped to about $80bn in December, a more than five-fold increase during 2015 and the highest level since the 2008-09 financial crisis."

In terms of overall US Bankruptcy Court trends, the BankruptcyData.com report notes that the 2015 figures represent approximately 33 percent of the business bankruptcy activity seen in 2009.

BankruptcyData.com said: “Low interest rates, a robust capital market with easy access to financing, out-of-court settlement alternatives, a slightly improving economy, the perceived cost of filing for bankruptcy and tighter bank lending decisions have driven the number of bankruptcy filings down over the last six years.

“Additionally, the recession eliminated many of the troubled companies, so the remaining relatively healthy businesses are able to borrow with little fear of raising rates keeping the filing rates down.”

Report: Quarterly Report of Business Bankruptcy Filings - Period Ending December 31, 2015

Financial services firms report strong business growth but sober optimism in new survey

BY Fraser Tennant

Financial services firms are reporting strong growth in business volumes and improving profitability, according to the latest CBI/PwC Financial Services Survey published this week.

The quarterly survey, which reflects the views of 100 financial services firms in the three months to December 2015, reveals that the overall level of business remained “above normal” – despite the fact that business with overseas customers fell to its lowest level in three years.

The survey also found that although there was a marked increase in optimism in the financial services sector in the first half of 2015, this had risen only slightly by the year’s end due to the impact of strong competition on incomes (though tight cost control has helped to support a growth in profitability).

Key findings in the CBI/PwC survey include: (i) 45 percent of financial services firms stated that business volumes were up, while 22 percent said they were down; (ii) 30 percent of firms expected business volumes to increase, while 20 percent said they expect to see a fall; (iii) 14 percent of financial services firms indicated they felt more optimistic about the overall business situation compared with three months ago, while 8 percent said they felt less optimistic; and (iv) 29 percent of respondents confirmed that, in volume terms, their level of business was above normal, while 18 percent stated that it was below normal.

Despite strong growth in profitability driven by easing cost pressures and increasing business volumes, Rain Newton-Smith, CBI Director for Economics, is aware of the downside risks from developments overseas. She said: “The global economic outlook remains uncertain while China rebalances, which is having knock-on effects on emerging markets, amidst continued unrest in the Middle East.

“While investment intentions remain robust in IT, and marketing spend is set to expand as firms seek new customers, elsewhere companies are curtailing their capital spending due to poor returns.”

Over the next 12 months, the survey forecasts that financial firms expect to see weaker growth in business volumes, in addition to flat income and rising costs. In the meantime, employment prospects remain mixed, with banks in particular reporting a fall in employment.

“It’s clear that optimism is muted across the whole (financial services) sector and each sub-sector has its own challenges," commented Kevin Burrowes, UK financial services leader at PwC. “Against this backdrop, the growing spectre of cyber-crime looms large and the threat of major attacks continues to stalk the entire financial services industry.”

Report: CBI/PwC Financial Services Survey December 2015

China's GDP growth reaches 25 year nadir

BY Richard Summerfield

As the world’s pre-eminent emerging market, China has been at the forefront of global economic development. It has played a pivotal role in helping to drive growth internationally over the course of the last decade; however, the days of blockbuster expansions appear to be at an end.

Against a backdrop of substantial capital flight, gradually crashing stocks and a sliding yuan, the Chinese economy endured a tumultuous 2015.

News that China's annual gross domestic product growth dropped to 6.9 percent last year, from 7.3 percent in 2014, has only increased concerns around the health of the world’s second largest economy.

Growth in the fourth quarter of 2015 fell to just 6.8 percent. Steel output fell 2.3 percent to 802.8m tonnes, while power generation fell by 0.2 percent. Coal production dropped for the second consecutive year. These declining numbers combined to see China record its lowest period of growth since 1990, according official statistics released on Tuesday.

The data comes during a period of great uncertainty around the Chinese economy, which has had an enormous effect on global markets. However, China’s markets largely cheered the country’s latest GDP figures, noting they were in line with predictions.

While many western economies would welcome news of 6.9 percent GDP growth, for China it represents a backwards step, albeit not a surprising one. The economy has been beset with issues over the last 12 to 18 months. Weakening exports, slowing investment and an overcapacity of both housing stock and factory space have all had a detrimental effect.

All this piles more misery on the Chinese government, which is attempting to reform the nation’s economy. Beijing intends to transition away from a centrally planned, manufacturing economy, embracing a somewhat market driven model more dependent on services and consumption. But this transition looks set to be a painful one.

There are also question marks over the reliability of the data released by the Chinese government,with some analysts suggesting that things may be far worse than Beijing is willing to admit.

To counter the slowdown, Chinese officials have said the government is looking to increase deficit spending in 2016 to generate growth.

News: China's growth hits quarter-century low, raising hopes of more stimulus