Acquisition Appetites Impact the Value of Oilfield Businesses

Oilfield Industry Newsletter, July 2014

We’ve represented dozens of owners through the complex process of selling their businesses. Many of these clients initially had no interest in selling their business — until we alerted them that buyer appetites were so favorable they should at least entertain some offers. As offers came in, they were astonished at what their business was worth, considered the risk of continued ownership, and sold their business at a significant premium. To sell a business at a premium, an owner needs to understand how buyer appetites can drive up the value of that business.

Understanding How Changing Acquisition Appetites of Buyers Directly Impact the Value of Your Oilfield Business

The largest external influencer on oilfield business value is the constantly changing acquisition appetites of qualified buyers in the industry. When multiple buyers are “on the feed” (actively seeking to acquire oilfield businesses) a window of opportunity opens for a business owner to sell at a premium. These windows only open for brief periods of time, and must be recognized as once in a lifetime opportunities for business owners who envision a life beyond running a business. Chances are, if you don’t act, one of your competitors will.

Let’s take a look at what is currently driving the appetites of buyers of oilfield businesses, how these drivers are impacting the value of your business, and how to stay well informed of buyer activities in the oilfield so that when the window opens for you, you don’t miss out on your once in a lifetime opportunity to cash in at a premium:

  1. Large Corporations Are Buying Their Way Into The Oilfield From Outside The Industry:

    Large corporations that dominate an outside industry with limited prospects for growth in their traditional businesses often look to other industries as a means for growth and diversification. Recently, we’ve seen a number of new players from the waste management and retail propane industries complete strategic entry acquisitions in the oilfield. These publicly traded companies have solid brand names in their traditional businesses, are well funded, and are committed to aggressively expanding their presence in the oilfield through intense acquisition campaigns.

    Typically the initial acquisition targets these companies seek out are well established players in a shale formation, or companies with operations in several shale plays. Once established in a shale play they will continue to acquire smaller “tuck in” companies to quickly grow into a market leading position.

    For a business owner, being one of the first to transact with these new entrants will almost certainly result in a significant premium because getting deals done quickly is a top priority. Oilfield businesses located in the Bakken, Eagle Ford, Marcellus, and Utica shale plays are especially desirable for these companies to acquire and will command a premium value. In this situation, you want to be at the front of the line to capture the largest premium.

  2. The Established Big-Gun Oilfield Companies Are Increasing Their Acquisition Activities:

    In our discussions with the oilfield industry “Big Guns”, they’ve all communicated their increased focus on acquiring businesses to supplement their growth and continue to take out competition in the shale plays. These serial acquirers historically have taken a disciplined approach to acquisition valuations; however, we expect that as they begin to lose deals to the new industry entrants described above, they’ll need to significantly up their valuation offerings to prevent the new entrants from gaining a foothold in the industry. We see this as having real potential to create an environment for deal values to go through the roof in the short term (12 months), especially in the most popular shale plays.

  3. Old Salts Are Buying Back Into The Industry:

    We’re seeing industry veterans who sold their oilfield businesses 5-plus years ago re-entering the industry now that their no-compete agreements have expired. These old salts have significant experience in the industry and are well-funded with the proceeds from the sale of their prior oilfield business. In certain circumstances this adds to the qualified buyer pool for business owners who are considering the sale of their business.

How To Stay Informed of Buyer Appetites In The Oilfield:

A good starting point is the internet, and the merger & acquisitions sections in the oilfield industry publications for press releases and deal announcements. Keep in mind that not all transactions are announced publicly, and information about transaction value or purchase price is usually not disclosed.

Publicly traded corporations will post quarterly analyst presentations in the investor relations section of their website. These presentations will occasionally discuss the company’s acquisition activities and strategy.

The best source of information on buyer appetites and current business valuations is through experienced merger and acquisition firms which actively represent business sales in the oilfield industry. At Shotgun Capital, we welcome every opportunity to speak with business owners in the oilfield and are more than willing to provide them with up to date information on what we’re experiencing in the industry. We interact with the buyers extensively; however our interests lie solely in maximizing deal value for our clients through the sale of their business.

If you’re interested in learning more about our views on the industry or have questions about what your business may be worth, feel free to give us a call anytime at 817.421.5940. Our motto is “no pressure, no B.S.”, and all conversations are held in strict confidence.