Global energy M&As up in 2018 as oil prices surge; Asia a key activity driver
Mergers and Acquisition (M&A) activities within the global energy sector are on the rise this year; thanks to higher oil prices, plentiful financing and a strengthening global economy, US law firm Baker McKenzie said in its latest report in the Global Transactions Forecast series.
It said that the total value of M&As more than doubled in 2017 to US$345 billion, up from US$164 billion in 2016.
In 2018, the firm forecasts M&A deal values to continue rising to a peak of US$353 billion before cooling in line with a slowing of global investment growth as borrowing costs rise in key economies and stretched stock market valuations start to soften.
Key driver regions are setting the motion for the upbeat transaction activities. North America will continue to lead M&A activity in the energy sector in 2018, although it is predicted that transaction values will dip slightly to US$227.7 billion, down from US$242.5 billion in 2017. In Europe, energy M&As are projected to rise by more than 30% to US$56.6 billion, followed by Asia Pacific (APAC) with US$50.4 billion. Meanwhile, Latin America and the Middle East and Africa post values of US$13.4 billion, and US$4.5 billion, respectively.
For the next two years, Baker McKenzie forecasts energy M&A values in APAC to rise nearly 25% over the next two years, from US$43.6 billion in 2017 to US$53.2 billion in 2019. Chinese spending, bolstered by appreciation of the yuan and the government’s ambitious Belt & Road initiative, is expected to drive M&A activity in the region.
“If oil prices continue to rise, it’s likely to kick-start development of the projects that have been put on hold because of low oil prices,” says Martin David, co-chair of Baker McKenzie’s Global Power Industry Group. “We will also likely see a rise in M&A activity in the upstream and mid-stream sectors.”
The upbeat forecast spills over to energy IPOs, which are forecast to double to US$ 13.9 in 2018 from US$ 7.3 billion a year ago, driven by a rebound in oil and gas listings. With oil prices firming, IPOs are expected to swing back this year across a number of geographies, including North America as industry players seek to raise capital to acquire new talent and technology.
Following a peak in deal activity this year, Baker McKenzie anticipates that energy M&A and IPO transactions will decline in 2019 as part of cooling of activity worldwide. After reaching a five-year high this year, it is predicted that energy M&A will drop to US$312 billion in 2019 and to US$256 billion in 2020. For IPOs, it is predicted to dip to US$12.3 billion in 2019 and another drop to US$6.1 billion in 2020.
Looking forward, the energy sector is expected to undergo greater diversification as companies prepare for advances in technology and renewables. New technology, especially innovations like self-driving and electric cars, could create major disruptions in the market.
(EOG)
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