If you own a successful, middle-market oil and gas (O&G) company, investors want to talk with you.
While the economy has seen a slow and steady recovery, the O&G industry has witnessed exponential growth over the same time period. This factor, combined with the continued demand for fossil fuels and advances in O&G technology, has placed middle-market O&G companies squarely in the bull’s-eye for eager investors.
This same set of market realities, combined with growing interest in O&G companies within the M&A market, equates to new opportunities for O&G business owners. Growing demand for established, successful companies has increased competition among investors, resulting in a pool of buyers who are now willing to pay more than any other time in recent history.
According to Shama Kabani, CEO of The Marketing Zen Group and a Forbes contributor, “Recently, one such emerging trend has caught my eye—more businesses, especially middle-market, privately-held businesses, are getting better valuations when selling their company than ever before.”
Read Ms. Kabani’s entire Forbes article here: Why You Should Consider Selling Your Business
If you own a middle-market O&G business (annual revenues of $25 million to $500 million) now is a great time to review your options with an experienced O&G investment banker.
So why are investors eyeing middle-market O&G businesses today?
1. The economy. Prior to 2009 (before the Great Recession), middle-market O&G companies were enjoying rapid growth associated with rising oil prices and an associated demand for related services. Business owners were not interested in selling, because life was great as they focused their attention on what seemed to be endless opportunity!
What Sir Isaac Newton quantified in 1687, namely…what goes up, must come down, the O&G market experienced first hand as the industry tanked along with the rest of the economy. Now, the world was inverted, and fewer businesses looked desirable to investors, even though there was plenty of M&A capital available to invest. Sellers had fewer options, and buyers suddenly enjoyed more leverage.
Today, our economy is slowly but surely on a path of recovery, and so are profits of middle-market O&G companies. In today’s market, those same businesses look good to investors, as profits are up and economic uncertainty is yielding to a restored confidence in the recovery. In 2014, sellers once again have more options and leverage is on their side. As market conditions continue to improve, more investors have been willing to loosen up their purse strings and get in the game.
Information is power and while economic growth is fueled by optimism, market sentiments are fueled by statistics. The April 2014 Bureau of Labor and Statistics jobs report indicates both sustained growth, and a budget deficit that hovers at a 7-year low, accompanied by home prices that have risen for the past 24 consecutive months.1,2,3 We have a way to go to full recovery, and yet investors are already confident that now is the time to be investing in this particular sector.
2. Enduring demand for fossil fuels. While the demand for renewable energy sources keeps growing, fossil fuels continue to provide a significant percentage of U.S. energy needs. A recent Energy Information Administration (EIA) forecast predicts that more than half of our energy needs will be fulfilled by oil and natural gas products through 2040 and beyond.4 There is little fear that demand will evaporate any time soon. In fact, the EIA is forecasting that we will produce more oil than we import in 2014.4
3. High value of new technology. According to the American Petroleum Institute, the U.S. leads the world in technological innovations within the O&G industry. These innovations have not only improved O&G efficiencies but have resulted in expanded production of domestic crude oil (29 percent since 2008) and natural gas (more than 33 percent since 2005) from shale deposits.5 Investors,at home and abroad, are looking for O&G technological advances to continue to help them cut costs, boost production and increase profits.
Case in point, Allegiance Capital helped client Fiberod find a buyer in the UK for its innovative, fiberglass sucker rod. This new technology increases efficiencies in the pumping process, and the London-based Smiths Group, along with it’s Illinois subsidiary John Crane, were eager to make a deal.
If you own a middle-market O&G technology company, an experienced investment banker can identify buyers who would benefit the most from your products and services. They can connect you with the right buyer for your individual circumstances – whether you’re looking to sell outright or raise capital for expansion.
Now Is a Great Time to Talk with Us
Don’t try to time the market and get stuck in another decline. If you’re going to sell, sell on the way up when your business is most desirable. An investment banker at Allegiance Capital Corporation can help you weigh your options at home and overseas. We specialize in marketing middle-market O&G companies worldwide and can handle the details for you.
To speak with an Allegiance Capital investment banker, give us a call today. You can reach us by dialing (214) 247-6846.
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1. “Employment Situation Summary,” [press release], April 4, 2014. United States Department of Labor, Bureau of Labor Statistics website. Available at http://www.bls.gov/news.release/empsit.nr0.htm. Accessed April 17, 2014.
2. Kruger D. “America’s Fiscal Health Affrimed as Treasuries Demand Rises,” April 7, 2014. Bloomberg.com website. Available at http://www.bloomberg.com/news/2014-04-06/america-s-fiscal-health-affirmed-as-treasuries-demand-rebounds.html. Accessed April 17, 2014
3. Swanson B. “CoreLogic: Home prices increase into second year,” April 1, 2014. Housing Wire website. Available at http://www.housingwire.com/articles/29513-corelogic-home-prices-increase-into-second-year. Accessed April 17, 2014.
4. “Annual Energy Outlook 2013.” Energy Information Administration.
5. “Annual Energy Outlook 2012.” Energy Information Administration.