Cost will drive M&A in oilfield services - Mergermarket Energy Forum
M&A activity in the oilfield services sector will be primarily cost-driven in the near term, panel experts said at the Mergermarket Energy Forum in Houston, Texas last week.
Halliburton’s (NYSE: HAL) attempt to merge with Baker Hughes (NYSE: BHI), driven by the same motives, held up deals as companies wanted to see if it would go through or not, said David Andrews, senior managing director with Evercore (NYSE: EVR). Transactions in the near term will be between companies that “don’t have balance sheet issues” interested in lowering administrative expenses and leverage, he added.
“There isn’t anybody willing to bet their balance sheet and put a lot of cash up on a deal unless it’s a sizeable company buying somebody smaller,” Andrews said. “The focus has to be on cost synergies.”
Andrews, who advised on the Technip (EPA: TEC)/FMC Technologies (NYSE: FMC) USD 13bn merger announced this week, said the failed Halliburton transaction “for a variety of reasons may have made this deal more likely.”
Meanwhile, the appetite for technology-driven M&A is “low,” and some time off yet as companies focus on different business models and ways to cut costs, the panel said.
“In general nobody’s been sitting on the sidelines waiting to go pay something astronomical for a tech company,” Andrews said. “It really feels like we’re down into nuts and bolts of how we get rid of costs. Innovation deals will come but they will come in smaller size. The big stuff, people aren’t really looking for it.”
“No one has the time," said Edward Bialas, director with energy private equity firm First Reserve. “In the near term, the only innovations to get adopted will be adjacencies to products and services that already exist. There’s not many people that have time to evaluate something different and distinct. This market is more about filling in gaps in the product line than it is about going and acquiring new technology at high prices.”
Those hoping to make an impact in the field will need to come up with a disruptive technology that increases marketshare or margins, said Steven McDowell, global director of acquisitions and divestitures with Weatherford International.
“It might be a while until you see a lot of investment (in this space), but there will continue to be small capital expenditures,” McDowell said. “We are obsessed with market share. That’s the game changer for us.”
“You certainly can see things coming more out of the technology space in terms of big data,” said Rodney Reed, vice president corporate development with National Oilwell Varco (NYSE: NOV). “There’s some real potential here but you don’t want it to be something that’s sort of cool but doesn’t yield a return for you.”