Consistent with earlier deals in 2020, all the big Q4 public company corporate deals were all-equity, low-premium combinations. “Wall Street appears supportive of E&P deals, but with very specific expectations on deal structure and the quality of the merger target,” added Dittmar.
While big corporate deals lifted M&A value in 2020, deal flow as measured by the number of announced deals fell to historic lows. There were only 140 announced deals with a reported value in 2020, the lowest annual total since at least 2006.
“There was very little appetite for buying upstream assets in 2020,” said Dittmar. “In particular, companies were unwilling to invest substantially in buying undeveloped land, a staple of past upstream deal markets.”
In 2021, upstream M&A is likely to normalize relative to the boom-and-bust cycle of large corporate deals or nothing during 2020. There is a substantial backlog of non-core asset divestments for companies to pursue.
Corporate consolidation is likely to continue as companies look for synergies to drive down their cost structures. However, there may be fewer very large corporate deals because so many of those were accomplished during the last year, winnowing the list of possible participants.
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