M&A market observers seeking evidence of softening global M&A activity should look no further than the oil & gas sector. In the first nine months of 2019, deals in the industry fell 36 percent by volume and 34 percent by value compared with the same period in 2018. This represents the lowest volume for the first three quarters of any year since 2009.
The disparity is closely tied to oil price uncertainty over the past 12 months. At the start of 2019, OPEC producers agreed to reduce output by 1.2 million barrels a day in an attempt to stabilize oil prices. In July, the group of the world’s largest oil producers recommitted to the pullback, extending cuts to March 2020. These measures have had minimal impact.
Economic warning signs over the last year have also played a role. Reduced economic activity has historically correlated with lower energy demand, and flat to negative manufacturing output in a number of key geographies such as the US, China, Germany, the UK and India has indicated weak demand for goods.
While some oil & gas companies were looking for increased size in the upstream space, others were attempting to diversify. In the meantime, oil companies have grown accustomed to a challenging oil price environment and heightened environmental, social and corporate governance (ESG) hurdles.
Pressure on companies to refine asset portfolios, and in some cases move away from legacy assets in favor of cleaner alternatives, may provide sufficient opportunities to spur a deal-making recovery in 2020.
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