Bosses at VTB Capital have said that they expect large-scale mergers and acquisitions (M&A) in the oil industry
Neil Mackinnon, global macro strategist at the Russian-based investment banking group, said that he thought there was ‘no doubt’ there would be a period of increased M&A activity, as firms anticipated an eventual return to oil prices in the US$70-100 bracket.
His statements were echoed by his colleague Wiktor Bielski, global head of commodities research at the bank, who added that the need for firms to generate growth, combined with a limited remaining ability to cut costs, meant that such activity was inevitable if the price of crude remained low.
“A big M&A cycle here looks guaranteed because for most companies it’s the only way they are going to generate some growth,” Bielski told Oil Review Middle East. “Valuations in certain industries like ours are at cycle lows - some of them are historic lows.”
Commodity prices would not stay low forever, according to Bielski, who added on to say that, “So the time is right if you are sitting on US$20bn of cash on your balance sheet and you don’t want to pay it out to investors because you’ve already paid out a lot. There is a lot of good value out there — the time is right to buy.”
A report by Wood MacKenzie recently claimed that Shell’s US$69.7bn takeover of BG Group could spark a flurry of M&A activity but Bielski claimed the movement had already begun behind the scenes.
“There are lots of pools of cash; sovereign wealth funds have US$7 trillion under management now. A lot of that money has been going, very quietly and very cleverly, into strategic stakes in companies that look like potential takeover targets. So there has been a bit of a move already but I think that move is going to accelerate quite fast this year,” Bielski revealed.
