By Nate Trela and Hana Askren, with analytics by Philip Segal
Relatively steady but low oil and gas prices in North America have led to a slowdown in energy M&A and activist investors are finding that when deals do happen, they rarely get what they want.
The increasing use of low premium, all-stock deals in the energy sector is blunting the returns for investors, which seems to be dimming activist interest in the space, according to sector advisors.
The deal landscape is framed by an eternal conflict in the oil and gas space; bidders are basing offers on current commodity prices while sellers want valuations that reflect a more optimistic view, a sector banker said. As a result, companies are settling on equity-heavy terms that require activists to have greater patience because they are unlikely to be realized in the next quarter or two, the banker said.
The average premium for the three all-equity oil and gas deals this year was 10.8%, according to Mergermarket. This compares with an average premium for sellers of 28.6% during the period from 2013 to 2018, based on the share price one day prior to the deal announcement.
The broad lack of activity, in turn, has put a crimp in activists’ favored demands, said a sector attorney and the banker. Activists came into the oil and gas space over the last few years hoping to push companies toward strategies that could provide better shareholder returns, such as major divestitures or company sales, the banker said. Those efforts in many cases have failed to produce deals, he noted.
The average premium for the three all-equity oil and gas deals this year was 10.8%, according to Mergermarket. This compares with an average premium for sellers of 28.6% during the period from 2013 to 2018, based on the share price one day prior to the deal announcement.
The broad lack of activity, in turn, has put a crimp in activists’ favored demands, said a sector attorney and the banker. Activists came into the oil and gas space over the last few years hoping to push companies toward strategies that could provide better shareholder returns, such as major divestitures or company sales, the banker said. Those efforts in many cases have failed to produce deals, he noted.
