Oil & Gas Mergers & Acquisitions Expected to Increase in the Lower-Middle Market in 2015

2014 was a record year for oil and gas M&A with an estimated 1,296 transactions completed worldwide at a combined total deal value of approximately $381B, according to data released by Thompson Reuters through December 5, 2014.  That translates into an average enterprise value per oil and gas transaction of approximately $294M in 2014.

For comparative purposes, worldwide deal values in this industry (as reported by Thompson Reuters) were approximately $222B in 2013, an increase of about $159B in total transaction value, or 72% year-to-year.  Relatively speaking, it was a big year for mergers and acquisitions in the oil and gas industry!

While the Thompson Reuters’ data only tracks large, publicly announced mergers and acquisitions data (skewing the average transaction values significantly upward), the data points to a larger more important trend within the industry, one that can be extrapolated to the lower-middle market in 2015.  A trend towards the consolidation of oil and gas companies.

According to Scott Mashuda, managing director of U.S. based lower-middle market M&A firm, REAG, industry consolidation will trickle down to the lower-middle in 2015.  But, for very different reasons than those that drove the consolidation trend of large multinationals in 2014.  “In 2014, large oil and gas M&A was driven by wealthy multinationals benefiting from inflated crude prices. In 2015, we expect the price of crude to remain depressed for much of the year, translating into increased pressures on smaller oil and gas producers to better utilize their assets, operate more efficiently, and consolidate to overcome sustained downward pressure on prices,” said Mashuda.

According to Mashuda large producers will not be sitting on the sidelines while smaller producers consolidate.  “I would not be surprised to see large producers sustain their M&A trend through 2015. But, I would expect their appetite for larger transactions to decrease as their profits diminish.  Instead, they will likely look downstream for acquisitions in the lower-middle market, and acquire smaller producers while their valuations are depressed,” said Mashuda.

Either way, it appears 2015 is setting up to be another big year for oil and gas industry M&A, especially in the lower-middle market.