Oilfield Services Consolidation
Navigating the Rough Waters of Sector Transformation
The OFS industry is still reeling from a severe industry downturn which began in mid-2014. With a significant crude price decline, M&A activity slowed substantially from the historically high levels of late 2013 and the first half of 2014. Adjusting to the “lower-for-longer” environment, OFS companies have been stabilizing balance sheets and right-sizing cost structure. The sector landscape has been changing, with signs of readiness for corporate transaction activity. Energy executives are now looking to deals as a means to achieve scale, fill in portfolios or enhance capabilities.
Positioning and deals strategy
To avoid the common pitfalls that plague transactions, successful dealmakers should consider several key factors:
- How are we positioned today and which capabilities do we need to enhance or obtain in order to deliver the winning value proposition to our customers?
- Which deals best fit with our position and allow us access to desired capabilities?
- Are target’s business models complimentary to our own?
- Should we buy or seek an alternative way to obtain access to these capabilities?
- How should we execute the deal?
Four types of companies
Successful companies develop a deal value proposition that differentiates them from their peers and enhances growth potential. Furthermore, deal strategy and a way to play should be aligned with current asset strength and liquidity position. The appropriate course of action for a given company can be defined by its fit in one of the following four categories:
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