Oil price crash: can M&A save the day? Part one. Report

Insight 24 March 2020

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Report summary

Though we are in unprecedented times, we can still take insights from previous downturns. We know, for example, that uncertainty stymies deal flow – and this may be the most uncertain downturn of all. We can also make some inferences on what will be different this time. When oil prices collapsed in 2014, they did so from a period of buoyancy and during a time where the oil industry still appeared to have a long and rosy future. This collapse comes amid more longer-term uncertainty. In this Insight we consider the challenges facing the M&A market in the near term, and consider how valuations and deal activity will progress in the longer term. This is part one of a two-part series. Part two, which will follow in the coming week, will focus on the M&A outlook for key peer groups: Majors, Independents, NOCs and private equity.

Executive Summary
- Circumstances have changed; companies are in survival mode
- Deal flow may be stagnant for some time
- Deal valuations will fall, buyers have the upper hand
- Corporate-scale M&A will eventually facilitate companies' moves down the cost curve
How has the oil price collapse changed the M&A environment?
- Appetite and capacity to do deals has fundamentally changed
- The bid-ask spread has been blown wide open
What will happen in the next few months?
- Precedents suggest there will be few deals in the near term
- Precedents may understate the extent of this M&A slowdown
- Coronavirus fallout and OPEC+ create exceptional conditions with many uncertainties
- Deals which have already been agreed may not complete and ongoing discussions will reset or end
- Where are we now? Dozens of deals have yet to close
Beyond the next few months
- Deal flow could be stimulated if prices bounce
- Continued low oil prices will eventually boost deal flow
- Deal prices will fall
- Lower long-term price assumptions will reduce valuations and deal prices
- Lower ILTOPs does not mean targets are "cheap"
- Buyers have the upper hand over sellers
- Bad news for divestment programmes
- Companies will sell what they can
- 4 more item(s)...
How does the energy transition / ESG play into this?