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Energy M&A Hits A Brick Wall: Ex Shell-BG Megadeal, Q2 Deal Value Was Lowest Since 2008

One of the few catalyst that had helped maintain a consistent bid under energy names in the first half of 2015, despite the dramatic drop in the price of oil in late 2014 and then again in the last several weeks, was persistent fears of an "unexpected" M&A bid which would crush any new or incremental shorts who would otherwise have been delighted to accelerate the downward momentum in the beaten down energy sector.

The result was an epic surge in forward energy P/E multiples: ones which even put the "glamour" multiples to shame, and threatened to overtake the all time fwd multiple high as recently as a few months ago.


However, now that the latest crude dead cat bounce is over, it is time to reassess just how credible a surge in energy M&A activity truly is. The answer, as the EIA's energy blog reveals, is not very credible at all (especially when considering the disappointing for the industry development when Whiting Petroleum pulled itself off the block when it found no buyer and was forced to massively dilute its shareholders instead).

In fact, if one excludes the gargantuan April merger between Shell and the BG Group, Q2 M&A activity was the slowest in since 2008! If the price of oil continues to decline, one can be certain that Q3 M&A activity will be a dead zone.

From the EIA:

The second quarter of 2015 exhibited the largest amount of oil companies' merger and acquisition (M&A) activity by value since fourth-quarter 2012. The announced merger between Royal Dutch Shell and BG Group in early April accounted for $84 billion of the $115 billion quarterly total.


Without the Shell-BG merger, however, the value of deals in the second quarter of 2015 would have totaled $31 billion, $18 billion higher than first-quarter 2015, which was the lowest since at least 2008. The 137 deals announced in the second quarter was the lowest number of deals since fourth-quarter 2008 and 42% below the 235 median quarterly number of deals over the previous two years, indicating less breadth of activity.



Companies often merge with or acquire other companies or their assets in an effort to achieve longer term growth, economies of scale, access to new technologies, diversity of market exposure, or a combination of factors. The buying or selling company may see a valuable opportunity that aligns with its own goals and expectations in deciding to purchase or sell assets. Also, a company may feel that it could benefit from adding new assets that complement its current strengths or by developing expertise in a market segment it currently does not participate in.


M&A deals vary in size and can sometimes take months of negotiating to complete. M&A activity often reflects how market participants view future opportunities. The availability and cost of financing as well as legal factors also play a critical role in the value and amount of M&A activity.

And since with the exception of just one mega-deal, the merger and acquisition landscape has hit a brick wall, one needs no explanation to understand just how "market participants view future opportunities."