Mergers and acquisitions (M&A) within the energy sector are likely to increase this year, but companies may be challenged in securing ready capital, according to a recent survey.
CFO Research Services collaborated with CIT Group Inc. to survey a range of industry executives across North America for their forecasts for M&A this year. The study, “M&A in Challenging Times,” was fielded in November 2007, with surveys of 529 senior-level finance decision-makers at middle market U.S. and Canadian companies. The study includes 32 energy executives.
Nearly half, or 48%, of the North American energy executives surveyed consider M&A to be a “major part of their current business strategy,” according to the report. Forty-two percent said M&A “contributed” to their business strategy; 10% said it was only minor. And of those surveyed, 69% expect M&A activity to increase within the energy sector this year.
“When asked if the recent changes in capital markets will affect completing M&A transactions, it was a 50/50 split” among the energy executives, the report said. “Half of the respondents said these changes will not affect M&A volume, while the other half said they will have an impact over the next 12 months.” Difficulty raising capital (47%) and lack of transparency in the private company’s price, terms and other factors (38%) “posed the greatest challenges for middle market companies seeking to acquire other businesses, compared with what larger companies experience.”
Energy companies also are “significantly more likely than their peers in most other industries to say that they expect their companies to divest some portion of operations within the coming year,” the survey found. Fifty-two percent expect some divestitures in the business this year; 45% said it was unlikely.
The survey found that 41% believe that accessing overseas markets was a primary motivator for their latest acquisition. None of the respondents cited acting on competitors’ maneuvers as a motivator for acquiring a target company. Also, once a new business is acquired, 44% of the energy executives said that integrating information technology systems for finance was their “greatest challenge.”
To read the results for the entire survey, go to https://middlemarket.cit.com.
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