Merrill Lynch Sees Resurgence of M&A Activity

Mergers and acquisitions continue to thrive in the energy industry and will continue throughout the rest of the year, according to Merrill Lynch's recently released Natural Gas Weekly Perspective for the week ending March 16. The trend is highlighted by the industry's most recent major deal, Enbridge's purchase of Midcoast Energy last week for $600 million (see NGI, March 19).

Increased activity along the "energy value chain" --- from the upstream segment with greater values for reserves to midstream services and the downstream gas/power utility distribution segment --- should drive a resurgence of mergers and acquisitions, Merrill Lynch said.

"I think that when you look at the forces that are at work, a recipe if you will, it should bode well for M&A particularly in the energy space," said energy analyst Donato J. Eassey. "Competition is heating up, cost of capital is going down, P/Es are cheap relative to historical levels and most importantly, commodity prices are high. You have to find ways to cut cost, and a sure-fire way to do that is to combine entities.

"I think as rates come down, capital costs will decrease and [mergers] are going to look enticingly attractive, and you are going to see more of them," he said. He listed National Fuel Gas, AGL Resources and Nicor as companies with particularly attractive M&A value.

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