M&A: Running on Energy

Oil and gas companies are fueling merger and acquisition activity thus far in 2012, as they jockey for position in the race to develop nonconventio...
Vincent RyanJanuary 10, 2012

Merger and acquisition activity may be off to a slow start this year, but there’s plenty of energy in the market for takeovers — the kind of energy that heats homes and powers cars. In fact, the energy sector is the only industry with any semblance of a deal-making trend in North America to start the year.

The activity is a result of energy companies’ increasing interest in unconventional resources, like shale gas and oil sands, according to a survey released this week by BDO USA. One-quarter of CFOs of U.S. oil and gas exploration and production companies that responded to the survey said new resource plays — like shale — were the most important factor driving industry growth, up from 14% last year. The shift in desirable areas of investment will boost M&A activity in the industry this year, according to a majority of the respondents. Almost half the CFOs told BDO USA that revenue and profitability would be the primary drivers of M&A in 2012; 24% said it would be undervalued oil and gas assets; 16%, a desire to increase market share; 13%, a desire to increase geographic coverage; and 7%, a strategy to become a fully integrated oil and gas company.

Three notable deals occurred in the sector the first week of the year. China Petroleum & Chemical’s Sinopec unit agreed to buy a one-third stake in five U.S.-based oil and gas projects (covering 1.2 million acres) for $900 million. The seller was Devon Energy. Sinopec will also pay as much as $1.6 billion of the projects’ drilling costs.

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Likewise, PetroChina International Investment bought the remaining 40% interest in the Mackay River oil sands project. The seller was Canadian firm Athabasca Oil Sands, and the price was $665.8 billion.

Finally, Total E&P USA agreed to acquire a 25% stake in the Utica shale assets from Chesapeake Energy and Enervest Energy for $700 million. (Total E&P USA is a subsidiary of the French company Total SA.) Total, Chesapeake, and Enervest will jointly develop the necessary infrastructure and facilities to extract and transport the fuel. (The Utica shale formation contains nearly 5.5 billion recoverable barrels of oil and 15.7 trillion cubic feet of natural gas and underlies portions of Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, West Virginia, and Virginia.)

While all kinds of companies are on the auction block and rumored to be in talks with buyers, 2012 has been a bust so far. Year-to-date, there have been 45 M&A deals in North America, with a total disclosed value of $4.65 billion, according to data provided to CFO by mergermarket. That compares with 141 deals this time last year, with a total disclosed value of $9.51 billion.

Outside of energy, acquisitions were hard to find and relatively small. Here’s a sampling:

  • Recruit Co. (Japan) acquired the Netherlands- and U.S.-based divisions of staffing and outsourcing services business Advantage Resourcing for $410 million.
  • The management of Lawn Doctor acquired the company in a management buyout transaction, backed by Levine Leichtman Capital Partners.
  • Sara Lee acquired Tea Forte, a company that produces and packages tea blends and custom-designed accessories.
  • FMC Technologies bought a 55% stake in Schilling Robotics, a deep-ocean robotics company that manufactures subsea control systems.
  • Callidus Software, a provider of sales performance management tools, acquired LeadFormix, a marketing automation software firm.
  • Pacific Western Bank purchased Marquette Equipment Finance from Meridian Bank.
  • The management of Arthur D. Little acquired the company in a management buyout transaction for $17 million. The seller was Altran Technologies SA.

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