Merger and acquisition (M&A) activity is being tipped to grow in 2014 as confidence continues to return to markets.
Increased levels of M&A activity generally follow periods of heightened confidence in world markets. Such as the stock market rallies experienced throughout 2013. With increasing confidence in global markets and following a number of years of cost cutting and tightening of balance sheets, many are tipping a number of sectors to record an uptick in takeover activity in the near future.
Credit Suisse singled out the gas sector, particularly smaller companies with operations in the Cooper Basin, as likely candidates to be in the crosshairs of big business. David Hewitt, the firm's co-head of oil and gas research, was quoted in the Australian Financial Review as saying: "Given the differing scale of the upstream producers and the divergent positioning in the gas value chain, we would not be surprised to see accelerated consolidation in the Cooper Basin in 2014."
Companies which the investment bank identified as likely targets for buyers include Senex Energy Ltd (ASX: SXY), Beach Energy Limited (ASX: BPT), Drillsearch Energy Limited (ASX: DLS) and smaller player New Standard Energy Limited (ASX: NSE). The bigger companies range in size from $600 million to $1.8 billion (in market capitalisation) and boast increasing production and exploration activity, making them the perfect addition to both retail and institutional investors' portfolios.
Those likely to be on the prowl for acquisitive growth include Santos Limited (ASX: STO) and U.S. giant Chevron Inc. (NYSE: CVX). Both companies are major players in the gas sector – Chevron Australia is our country's biggest holder of natural gas resources – and will look to tap into the rising demand for cleaner energy from countries throughout Asia.
Foolish takeaway
With so many profitable producers on offer it can be tough for investors looking to capitalise on an uptick in M&A activity. Instead investors should focus on finding great companies at good prices. In my opinion, both Senex and Santos are great long-term exposure to the booming sector.
