Navigating the M&A Landscape in the Permian Basin
Navigating the M&A Landscape in the Permian Basin
May 1, 2024 – In the Energy Sector, particularly in the Permian Basin, Mergers and Acquisitions activity appears cautious but optimistic and signs are pointing to increased activity for calendar year 2024. Despite various industry and overall economic challenges, including high interest rates, global conflicts, political pressure and reduced demand, the Energy Sector in 2023 had one of its best years, from an activity standpoint, since 2016. According to PitchBook, the second half of 2023 saw activity increase significantly compared to the first half, and forecasters are predicting that increased level of activity will continue into 2024. The fourth quarter of 2023 saw a significant uptick in deal activity and value, representing more than half of the total deal value for the entire year. In total, the fourth quarter saw $194.2 billion in deal value, surpassing the previous three quarters total aggregate deal value of $186.6 billion. Total annual deal count closed at 1,349, the largest number since 2016. The Permian Basin remains a hotbed of activity as it continues to thrive with new opportunities for investors, ranging from the large majors to small private equity backed deals.
Several metrics are helping buoy the levels of activity in the Permian Basin, including:
- Strong operations
- Increased production and expected production levels
- Favorable political climate
- Majors and private equity flush with cash to spend on mergers and acquisitions (M&A)
May 1, 2024 – In the Energy Sector, particularly in the Permian Basin, Mergers and Acquisitions activity appears cautious but optimistic and signs are pointing to increased activity for calendar year 2024. Despite various industry and overall economic challenges, including high interest rates, global conflicts, political pressure and reduced demand, the Energy Sector in 2023 had one of its best years, from an activity standpoint, since 2016. According to PitchBook, the second half of 2023 saw activity increase significantly compared to the first half, and forecasters are predicting that increased level of activity will continue into 2024. The fourth quarter of 2023 saw a significant uptick in deal activity and value, representing more than half of the total deal value for the entire year. In total, the fourth quarter saw $194.2 billion in deal value, surpassing the previous three quarters total aggregate deal value of $186.6 billion. Total annual deal count closed at 1,349, the largest number since 2016. The Permian Basin remains a hotbed of activity as it continues to thrive with new opportunities for investors, ranging from the large majors to small private equity backed deals.
Several metrics are helping buoy the levels of activity in the Permian Basin, including:
While many metrics were high, the sector saw a sizable decrease in the average Enterprise Value/EBITDA multiples during 2023, reaching the lowest level in the past 10 years, apart from the anemic activity experienced during the heavily-impacted COVID year of 2020. Average multiples finished 2023 at 5.9x, down a full turn from 6.9x experienced in 2022. This decline likely indicates that a bridge has been made in the valuation gap between what buyers and sellers experienced in prior periods. This bridge will likely help to accelerate deal activity in 2024, as long as interest rates and regulatory headwinds don’t interfere. Although deal acceleration is likely, with strong cashflows and healthy balance sheets, mid-market operators may become less interested in selling and attempt to “ride the wave” as long as they can.
So, how can you position your company for the best possible outcome from an M&A exit?
Curious? Complete the form below to keep reading.
Disclaimer: This document is designed only to provide general information regarding the subject matter discussed. The standards, statutes, authorities, and other laws cited are subject to change.
This document is not intended to provide tax, accounting, legal, or other professional advice to any specific person or entity. Any advice or opinion regarding the application of the subject matter for a specific person or entity should be provided by a competent professional advisor based on an application of the appropriate law and authorities to the facts and circumstances applicable to that person or entity.