ABERDEEN dealmaker Tom Faichnie has predicted a surge in mergers and acquisitions will transform the business landscape in the city this year amid signs brighter times are in prospect for the key oil and gas sector.
Mr Faichnie reckons a sharp increase in deal activity is likely as the partial recovery in the crude price leaves the owners of some businesses keen to expand and others ready to head for the exit.
“Oil is still a volatile commodity and the North Sea remains a long way off a full recovery, however, over the past two years companies have seen their financials stabilise and reach a steady base,” said Mr Faichnie, managing director of Hall Morrice Corporate Finance. “The worst is over and order books are tipping in the right direction.”
He added: “Many business owners have been through this cycle before: they simply no longer want to go through another round of ramping a business up and developing it to the pre-downturn levels. They are saying, “It’s now sellable, let’s exit.”
Mr Faichnie predicted a range of small and medium sized enterprises could get swept up in the wave of consolidation in the oil services sector triggered by the sharp fall in the crude price since 2014. With some firms needing to increase their scale to help them compete, the process has a way to run yet.
“There are a lot of companies out there for which the quickest solution will be to merge,” said Mr Faichnie.
A range of private-equity backed oil and gas firms bought North Sea assets from majors last year.
Brent crude traded at around $66.50 per barrel yesterday against less than $30/bbl in the first quarter of 2016. It fetched $115/bbl in June 2014.
A sector analyst said Brent could top $100/bbl this year if political unrest in Iran resulted in an interruption to production in the country.
“Geopolitical risks are clearly back on the crude oil agenda,” said Bjarne Schieldrop of Scandinavian bank SEB.
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