While Shell’s agreement to acquire BG Group for US$69.9 billion is the largest mega deal since Exxon and Mobil merged in 1998, the underlying market is slow, according to research and consulting firm GlobalData.
The company’s latest monthly upstream deals review states that global upstream M&A activity reached a total value of $71.2 billion from 11 transactions in April 2015.
Matthew Jurecky, GlobalData’s head of oil & gas research and consulting, says that the volume of deals has steadily decreased since the summer before oil prices crashed.
Jurecky explains: “Operators are naturally trying to avoid selling in a down market as low oil prices have depressed asset values. A healthy capital market extends a lifeline to many companies, providing access to much-needed capital through debt and equity, avoiding having to sell assets in this environment.”
The report also states that financing through equity and debt offerings, private equity, and venture financing also fell slightly, from $31.1 billion in March to $25.3 billion across 67 deals in April 2015.
The majority of capital raising came from the debt offerings, which accounted for 81% of total investment, at $20.4 billion in April. This was a marginal decrease of 8% from $22.1 billion on the previous month, according to GlobalData.
Jurecky continues: “Last month saw upstream companies raise more capital than in any other month in the last year with the exception of March. However, this is unsustainable and capital markets will slow.”
The analyst adds that the industry is still unclear on how the blockbuster Shell acquisition of BG will affect the M&A landscape. While no real increase in activity has yet to occur, GlobalData expect deals activity to increase as companies with strong positions look to acquire undervalued assets.
“A mega merger like the Shell-BG deal was expected in this climate. Further mega deals in the upstream space would make strategic sense and the longer the down market persists, the more likely it is to happen. Other supermajors will be looking to emulate Shell and take advantage of this short-term blip,” Jurecky concludes.
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