Recently, the firm’s Calgary office completed its 2012 review of M&A themes and deal terms in the oil and gas sector. We prepared this study based on a review of the 34 public M&A transactions involving corporate targets listed in Canada that were completed or announced between January 1, 2012, and December 31, 2012.
This study contains a list of 2012 oil and gas M&A transactions; a review of key 2012 trends in deal terms; a summary of notable features of each transaction; an analysis of the timelines and events of contested bids; a numerical analysis of key deal terms.
A few key themes emerged from our review:
Transactions were clustered around a number of key ideas for buyers: -
- Gaining access to strategic reserves;
- Expanding exposure to Canadian resource gas and oil plays;
- For US buyers, accessing the Canadian oil and gas services market;
- Building better dividend-paying juniors and intermediates;
- Rationalizing small capitalization companies; and
- For small producers, divesting away from international assets.
- There were a very limited number of oil sands-focused transactions, and only one where the target was focused exclusively in the oil sands. Transportation uncertainty weighed on the sector.
- Activity remained concentrated in the upstream sector, where more than 70% of deals were for companies which had oil and gas exploration and production as their only business.
- There were only six deals done in 2012 where the consideration received by target shareholders was more than $1 billion. The majority of transactional activity was for targets valued at between $100 million and $1 billion.
- Cash was the sole form of consideration in only one-third of deals.
- There were two successful topping bids this year (on Spartan Oil and Open Range Energy) and one failed topping bid (on Progress Energy)
- There was one hostile bid (on Hyduke Energy Services) and two failed bids (on Hyduke and Veraz Petroleum)
- One transaction (that involving Pace Oil & Gas, AvenEx Energy and Charger Energy) elicited an activist campaign against the transaction
Agreed Transaction Terms
- Deals had an over-whelming preference for the Canadian “plan of arrangement” structure – this form was used 93% of the time. In many cases these agreements were completed quickly – the average being about 10 to 14 days. One agreement was negotiated in two days.
- Deals continued to be done with large lock-ups. Almost 75% of transactions had lockups of more than 10% of the target equity, reflecting in part the high-level of officer and director ownership in targets.
- The majority of transactions required the parties to use their “reasonable commercial efforts” to secure regulatory approvals. Only 7% required the parties to use some form of “best efforts”.
- Buyers did not use gates to closing based on specific triggers such as termination costs or impairment of asset rights very frequently – each of these terms appeared in only 15% to 30% of deals. Instead, they typically relied on the more general “absence of material adverse change”.
- 86% of deals gave the buyer a right to match superior proposals, and 57% of transactions afforded a three day period in which to make that matching offer.
- Reverse break fees are so common that we may have to invent another name for them. Over 70% of deals provided for a reverse break fee and of these fees, 91% were the same as the target’s break fee. It was, however, much less common for buyers to recover expenses in addition to the break fee. Only 23% of deals provided for this.
- None of the deals provided for a “go shop”.