The extraordinary drop in oil prices has been closely watched around the globe. Questions usually address the status of oil-rich areas like Russia or the Middle East or groups such as OPEC. Questions also frequently address the geo-political implications and concerns around cross-border stability.
Now, a new set of questions as bankers, investors and business leaders review oil prices: Might the sharp drop in oil costs lead to a big rise in merger activity?
The Wall St. Journal took an historical look, reporting that “when oil prices hit a trough, history points to a likely energy industry response: mergers and acquisitions.”
“Price crashes in the early 1980s and late 1990s sparked a rash of deal-making that reshaped the industry. A decline in the mid-2000s led the giant firms to pick up smaller companies. Now, with oil’s price down 40% since June, bankers and investors are hoping for a repeat.”
Investor’s Business Daily reports that in the U.S., “M&A Seen Staying Robust In 2015, Fueled By Oil.” The review adds: “U.S. GDP grew 5% in Q3, the most since 2003, as businesses and consumers picked up spending. The stock market rally also has made companies more willing to use shares as currency. Now add to the mix the recent collapse in oil prices.”
Indeed, Forbes adds: “The drilling industry’s woes as the price of oil sits below $60 a barrel are expected to become a new driver of merger and acquisition activity in 2015, after a banner year for deal-making as steadily rising U.S. economic data and an easing of political battles in Washington pushed stock markets to new records, outweighing tremendous geopolitical turmoil.”
In Europe, BBC News sees potential for a repeat: “The oil and gas industry is set for a year of mergers and takeovers as a result of the plummeting oil price, a business consultancy has predicted.” The piece continued: “PwC said 2015 may bring the first hostile takeover in the sector in living memory.”
So what might we expect around the possibility of increased merger activity? In the WSJ’s words: “London investment bankers—who handle a large portion of global oil transactions—say such deals are likely to pick up again.”