More takeovers predicted in the energy sector this year

There will be an increase of mergers and acquisitions (M&A) across all energy sectors in 2016. That’s according to a survey by KPMG which revealed 71% out of 174,000 energy executives […]

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By Jacqueline Echevarria

There will be an increase of mergers and acquisitions (M&A) across all energy sectors in 2016.

That’s according to a survey by KPMG which revealed 71% out of 174,000 energy executives said they have plans to start two or more M&A transactions.

Around 53% of them estimated deals under $250 million (£175m) and 28% are considering deals between $250 million and $999 million (£699.3m).

According to the survey, the US is the most attractive destination for M&A activity, with 87% planning to invest in the country followed by Canada and China.

Despite activity heating up the valuation disparity between buyers and sellers, coupled with the general economic environment and regulatory uncertainty will present the greatest challenges to these deals, the survey added.

Amid a weak economy and an industry inundated by organic growth challenges, consolidation of core businesses and the persistence of low commodity prices are seen as the biggest factors driving M&A activity.

Tony Bohnert, Deal Advisory Partner for Energy, Natural Resources and Chemicals said: “The low commodity price environment for oil, natural gas and wholesale power prices increased volatility and uncertainty of future earnings, causing a severe drop in equity valuations and creating the gap between seller and buyer valuation expectations.

“Companies, however, are looking for deliberate acquisitions that will strengthen their current market position and help them grow and expand, despite significant market drivers that recently shifted the industry’s landscape.”