Renewables starting to catch oil and gas as Scots M&A deals hot up

Three-quarters of “dealmakers” – such as accountants, bankers and lawyers – predict a “healthy” flow of M&A activity in the year ahead, driven by the energy sector.

Food and drink companies, buoyed by record exports of £5.4 billion, are also expected to contribute to deals as the industry looks to grow its exports to £7.1bn over the next five years.

Craig Anderson, senior partner at accountancy firm KPMG in Scotland, which carried out the survey, said: “Our research demonstrates confidence among Scotland’s dealmaking community, albeit this may be more apparent in particular sectors than others.

“While confidence in energy remains high, both for renewables and traditional oil and gas, the well-publicised expansion in the Scottish food and drink sector is evidenced in expectations of relatively-high levels of M&A activity.

But Anderson warned: “Other sectors continue to experience challenges with just 14 per cent of respondents to our survey expecting to complete retail deals in the year ahead.”

The oil and gas sector, which is worth about £7.6bn a year to Scotland’s economy through exports, has enjoyed a flurry of deal activity in the past year.

Parkmead, the Aim-quoted oil and gas company run by Dana Petroleum founder Tom Cross, snapped up Aberdeen-based Deo Petroleum in August. Earlier this month, Cross raised £20 million through a share placing and debt-for-equity swap, giving him a warchest to carry out further deals.

Edinburgh-based Melrose Resources, the oil driller run by Robert Adair, was taken over by Petroceltic in August, spreading the combined group’s influence across the Black Sea, the Mediterranean and North Africa.

The North Sea was also the stage for a number of massive international deals.

State oil company China National Offshore Oil Corporation (CNOOC) bought Canadian rival Nexen for £9.7bn, making the Chinese firm the operator of the Buzzard oilfield, the largest in the UK. China-based Sinopec also took over the British assets of Talisman Energy.

Dealmakers expect such blockbuster transactions to continue in the oil and gas sector in 2013. More than 70 per cent expect deals involving Scottish and North American companies, while the eurozone is predicted to account for a third of deals and the fast-growing “Bric” economies of Brazil, Russia, India and China contributing 22 per cent.

Renewables are expected to close the gap on oil and gas in 2013, with a record £1.5bn expected to have been invested in the sector during 2012.

But nearly three-quarters of respondents cited a gap between buyers’ and sellers’ price expectations as a barrier to deal completions, while availability of funding remains a concern for more than a third of those asked.

Anderson added: “Convergence between buyer and seller price expectations is a critical factor in the ability to conclude deals. Should this gap begin to close, we are likely to see this reflected in increased M&A activity.”