Total oil and gas industry M&A deals worth $163bn were announced in the second quarter of 2019 according to GlobalData.

The company tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

Offshore Technology spoke to Hugo Stolkin, a partner at leading deals legal adviser Linklaters, to gain greater insight into the latest trends around M&A in the offshore oil and gas industry.

Where does the oil and gas industry currently sit on the consolidation curve?

HS: “For a number of years, oil majors have been busy selling things off, and hunkering down in austere mode. They’ve said recently that they are looking to start buying again and expand.”

“With the Paris Accords on global warming, and the EU pushing to hit aggressive targets on reliance on fossils fuels, a lot of international oil companies which are listed are starting to realise that it’s going to get harder for them to raise money.”

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“If they want to raise money on the international markets, this may not work in the traditional ways. These funds are coming under pressure from investors, and politically as well, to have less exposure to fossil fuel companies.”

“The consequence is that further down the line, there will be logic in some of the big oil majors branching into other forms of energy. At the moment, the scale of this is small, but we will see a much more significant move away from fossil fuels.”

“We will continue to see big oil companies starting to get their heads around renewable technology by making small acquisitions. Later on, they will expand much more aggressively.”

How does an acquirer define success post-acquisition?

HS: “One of the things people often forget going in is that people get very focused on just making the purchase happen, so getting to the point when the money is paid and shares are bought. The real success for the buyer comes much later. The integration of two separate businesses is much more important, that’s the whole point of the deal.”

“The critical thing to help a buyer, in the early stages, is to get them in a good position for proper integration. It’s about doing your due diligence properly, which helps the buyer understand in advance what they’ll be getting into.”

What trends are you seeing in terms of the types of companies acquiring and being acquired?

HS: “A theme across lots of different sectors is that technology is everywhere now and in everything. There will be all sorts of clever software or bits of computer hardware that people are developing across the world that are exciting for these industries.”

And where do you see the big opportunities for M&A activity in the future?

HS: “Aside from into renewables, another move we will see is a half-way house. Not an oil company that never buys oil again, but moving away from oil to gas. This is a move generally across the industry because gas is cleaner, albeit burning it still warms up the atmosphere.”

What are the biggest challenges facing M&A activity in the sector at the present?

HS: “The biggest challenge is that you’re sitting in one industry that you thought you knew, and suddenly that old industry is transforming into a new one around you. So you may find yourself being more reliant on outside advisers as you move into unfamiliar territory.”

Is there any other insight which you would like to share for our readers?

HS: “I think the other interesting thing is because there’s been a lot of hunkering down in the industry over the last few years, everyone’s been buying less stuff. A lot of big companies – proper corporates – have lost a bit of their experience in how to buy things.”

“Through the eyes of a seller, a deal is not just about the size of the offer price, it is how quickly the buyer can move to execute the deal, and how quickly the buyer can assess and take decisions around risk. All sales are about dividing up the risks, so if a buyer can move very quickly and efficiently, then that buyer will be much more attractive to a seller than a buyer which is a big slow bureaucratic corporation.”

“That’s a challenge for lots of different established companies in the world now. There are lots of other potential buyers out there, e.g. financial sponsors, family boutiques etc., who are much faster and better at executing purchases than the old established corporates.”