RBC: "Why it’s not yet time for an energy M&A binge"

We've seen a few transactions, just this morning a smallish midstream/private equity deal was announced but the pros are waiting for the hot money to get burnt--remember the wailing last summer as every dentist with a half-mil was bottom-fishing and the complaint was they were wrecking things for the vulture class?

From Canada's Financial Post's Trading Desk blog:

It seems natural that the weak commodity price environment will lead to more M&A, given how many cheap opportunities are out there for companies with strong balance sheets.

But an examination of the past 20 years, which encompassed four major downtrends, demonstrates that is not the case in the U.S. energy sector.

Analysts at RBC Capital Markets found that corporate takeovers are actually more frequent when commodity markets are healthier, or prices are trending higher.

Leo Mariani noted that 65 per cent of U.S. exploration and production company takeouts in the past 20 years were in a decent or rising commodity environment.

“There may be a lot of buyers for oil and gas companies out there right now at a low point in the cycle, but we don’t think that there are a lot of sellers,” the RBC analyst said in a report. “Corporate M&A is more driven by motivated sellers rather than motivated buyers.”

He also found that transactions during downturns of the past saw significantly lower takeover premiums, coming in at 17 per cent versus 31 per cent in better commodity environments....MORE