Oil price set to supercharge M&A activity

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Anticipated activity in energy and resources for the second half of this year will boost M&A markets in the Asia Pacific, according to a leading lawyer.

Tony Damian, partner at Herbert Smith Freehills, said the volatility of the oil price will drive opportunities for M&A activity this year.

The drop in the price of oil has led to the divestment of non-core assets as companies move to strengthen their balance sheets.

“We are seeing a bigger range of strategic reviews from bigger players so really taking a hard look at their suite of assets and balance sheets and seeing they need to be holding onto and what should they look to be offloading,” said Damian.  “With the falling oil price that we have seen, that’s caused companies to look at their balance sheets and a lot of the energy companies have appreciated and realised that they have some very significant infrastructure assets on their books.”

Damian said the unprecedented increase in activity will mean opportunity for smaller companies, who may suddenly find assets more affordable.

“It will mean in the small to mid-tier space, you’ll see more consolidation as companies have to adapt to this lower oil price environment.  They can do that by trying to scale up and enjoy cost benefits from those sorts of deals,” he said.

According to Herbert Smith Freehills, Australia is seeing an increase in interest from overseas buyers, with the exception of US independents whose interest in early stage ventures is predicted to diminish.  The Asian market has already seen US companies begin to re-focus on their home markets.