Global Energy, Mining & Utilities Trend Report
Q2 2014's global M&A targetting the Energy, Mining & Utilities (EMU) sector recovered from a subdued Q1. Deal value increased 68.8% to US$ 143.8bn with 400 deals, up from 345 deals at US$ 85.2bn Q1 2014 and marking the hitest valued quarter in over a year (Q4 2012 valued at US$ 190.4bn).
The growth in Q2 contributed to H1 2014 deals valued at US$ 229.1bn increasing very slightly on H1 2013 (US$ 218.3bn), up 4.9%. Despite the growth though, the market share the EMU sector had in total global M&A during H1 2014 remained at a low 14.5% compared to 21.7% during the same time last year - this was the lowest half-year proportion since H1 2006 (12.8%).
Q2's comeback was primarily because of the dominant Energy sub-sector which reached the highest quarterly value in Q2 2014 (US$ 107.9bn) since Q4 2012, over 40% higher compared to both Q2 2013 (43.9%) and Q1 2014 (49.6%). Energy deal value in H1 2014 (US$ 180bn) was up 16.5% from H1 2013.
North American remained the most targeted region in H1 2014 with deals valued at US$ 117.3bn increasing 45.5% from the same period last year. Asia-Pacific (excl. Japan) caught up with Europe as US$ 43.5bn-worth of deals wasn't far from matching Europe's US$ 43.8bn. However, both regions saw lower deal values than H1 2013.
Even though global cross-border deals are increasing, domestic transactions are favored for EMU activity - 492 domestic deals valued at US$ 154.1bn resulted in 94 extra deals seeing a 15.2% increase by value from H1 2013 (398 deals worth US$ 133.8bn).
During 2014, the market saw several examples of shareholder activism in the resources sector, for example, in the Aurora/Baytex transcation, key shareholders of Aurora applied pressure on the Canadian bidder to increase its offer price in the lead up to the scheme meeting. The Canadian bidder yielded to pressure and increased its price from A$ 4.1 to A$ 4.2. "I don't think there will be major impediments to continueing momentum to deals, just execution hurdles that need to be carefully navigated," said Austrialian-based Minter Ellison partner Alberto Colla.
There are two main catalysts for deal flow over the next six months in the oil and gas space. One is if any of the majors such as Statoil, Chevron, or Total, which in recent times farmed into the unconventional space in central Austrialia, make unconventional shale work in the country on a resource scale, the look-through value from those results will flow through to smaller companies in the sector such that they will become clear targets.
Mining M&A has been on a downward turn as it comes to the end of its major M&A cycle, faces commodity price pressures and the majors look to streamline portfolios with new CEOs. However, according to speakers at Mergermarket's Mining event, nuggets of M&A will be seen in North America's gold mining industry in the shape of small deals. For example, the acquisition of Osisko Mining Corporation in April for US$ 3.4bn.
In Europe, weak power prices and uncertain regulatory frameworks meant that the utilities did not have the capital, or the appetite to engage in sizable acquisitions. This trend is set to continue, as the ailing carbon market is expected to weigh on wholesale electricity prices in the mid-term.