Oil services deals fail to take off even years after downturn
The amount of consolidation in the oil services sector is slowing, experts warned today, as companies in the sector face difficulties.
The number of mergers or acquisitions (M&A) allowed to 37 in the first half of 2019, new data shows, a reduction from 64 in the same period last year.
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It comes as the sector has failed to bounce back from a 2014 downturn in the price of oil which ripped through international markets. This year’s figures show the fewest deals since the downturn.
“Although [companies] have survived the downturn and are rebuilding earnings, they have not done so yet to a level which supports pre-crash valuations, as operators continue to retain purchasing power,” said Alan Kennedy, the oilfield services UK lead partner at KPMG, which compiled the data.
Meanwhile the value of deals in the sector has also dropped, though not as steeply, the data shows.
In the first six months of 2018, companies spent $7.4bn (£6bn) on M&A. In the same period their year they splashed out $7.2bn. However this is a far cry from the heady days of 2017 when the sector spent $62.4bn in the quarter.
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Kennedy said that the slowdown might be a sign of calm before the storm.
“Vendors believe that earnings and hence valuations will continue to improve and so are reluctant to transact just yet, whereas buyers are still cautious and want to see more evidence of sustainable earnings growth,” he said.
London-listed Gulf Marine Services, which provides services for offshore rigs, has had a torrid time over the last year, losing 83 per cent of its value on the stock exchange.