1. Value creation through M&A in the Oil and Gas industry: Value-Added assessment
During last decades the value and number of M&A deals worldwide is
steadily increasing ..
How to measure this additional value created through M&A?
.. but does this extensive M8A activity create additional value?
Methodology Event study Accounting study
Survey of
Executives
Clinical study
Advantages
objectivity
easy to generalize
long-term inside outlook objectivity
Disadvantages
only short-term
only for public
backward-
looking
difficult to
generalize
subjectivity
difficult to
generalize
difficult to
generalize
.. event-studies due to its ability to generalize conclusions ..
The value is usually created for sellers, but M&A for buyers is mostly
value-destructive ..
-10%
0%
10%
20%
30%
40%
50%
BCG, 2007 Campa and
Hernando,
2004
Healym,
Palepu and
Ruback, 1997
Houston,
2001
Kaplan and
Weisbach
Kuipers,
Miller and
Pater, 2002
CAR Total
CAR Buyer
CAR Seller
The evidence on the overall value creation through M&A is not significant ..
The following sample was used:
O&G - one of the largest industries for M&A ..
Hypothesis 1: M&A in the O&G industry creates value
Deals announced
during
2013-14
Broad
definition of the
industry
Value > 0.2 US
bln. dollars
Both national
and
international
M&A and major
stock purchases
77 cases for 53
transactions
0%
2%
4%
6%
8%
10%
Total Buyers Sellers
CAARS
LT CAAR [-10,+10] ST CAAR [-1,+1]
Main findings: sellers tend to create significantly more value through
M&A in the O&G industry (on average 7.7%) both during short-term and
long-term period than buyers (on average 1.2%) ..
-50%
0%
50%
100%
1 11 21 31 41 51 61 71
N of Case
Overall CARs
CAR [-10,+10] CAR [-1,+1]
Hypothesis 1 is right : M&A in the O&G industry creates value
Main findings: The overall value creation for both buyers and sellers
through M&A in the O&G Industry is statistically significant: 4.9% short-
term and 3.4% long-term
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Kristina Rylova, MSc Business Economics 2014-2015 KU Leuven

2. Value creation through M&A in the Oil and Gas industry: Analysis of factors
If value can be created through M&A in the O&G, then certain factors
positively affecting the likelihood of value creation can be identified ..
Critical success factors of value creation during M&A
Preparation process related
factors
External factors
‘Soft’‘Hard’
Industry-
specific
Deal-
specific
Economic-
related
- Synergy
evaluation
- Integration
project
planning
- Due diligence
- Manageme
nt team
- Cultural
issues
- Communic
ations
- Size
- Location
- Financial
performance
- GDP growth
- S&P500
growth
Company-
specific
- Concentration
- Segment
- Deregulation
- Timing
- Financing
- Acquisition
premium
- Number of
bidders
.. The following analysis is focused only on external factors excluding the
economic-related factors due to the short time period ..
.. Seven specific factors from different categories have been selected to
analyze the impact on value creation..
Factors of value creation through M&A in the O&G industry
Industry-specificDeal-specific Company-specific
.. The following methodology has been applied ..
.. to analyze the following list of hypotheses:
Financing
Acquisition premium
Country
Size (value)
Strategic rationale
Oil industry segment
Oil price
- Same sample of 77 cases for 53 transactions
- Regression analysis of identified factors on short-term and long-
term CARs derived from the event studies analysis
- Dummy variables for hypotheses regarding financing, country, oil
industry segment and strategic rationale
- Statistical significance test (t-test, p values)
H2. Financing the transaction in the O&G industry with cash
only is related to significantly higher value creation.
H3. Offering a higher acquisition premium for a target in the
O&G industry is related to significantly higher total returns
H4. If one of participants is from emerging country, the total
value creation through M&A should be higher
H5. In general, the larger size of the deal in the O&G
industry (higher valuation) is related to higher total returns
H6. In general, the transaction activity in the Upstream,
Midstream and OFS sectors of the O&G industry is related to
the higher value creation than other combinations of segments
H8. In general, O&G transactions focused on the synergy
realization in the existing areas are likely to create more value
rather than O&G transactions aimed at expansion to new areas
H7. In general, higher oil prices are related to the higher value
creation through M&A in the O&G industry
Main findings: firms in the O&G industry can enhance value creation
through M&A both as buyers and sellers conditional on the following
factors:
Value creation through M&A in the O&G industry is more likely, if …
In
general
For
buyer
For
seller
Deal-specific
factors
Financing deal is financed with cash only + ! + ! + !
Acquisition
premium
premium is higher + ! + + !
Company-
specific
factors
Country developing country is one of the participants + - + !
Size value of the deal is higher 0 + ! -
Oil industry-
specific
factors
Segment deal takes place in the upstream or OFS + ! + + !
Oil prices
deal happens during the period of higher oil
prices
0 - ! + !
Strategic rationale
deal is focused on the synergy realization rather
than growth
+ + ! +
+ true; - false; 0 no evidence ! statistically significant
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Kristina Rylova, MSc Business Economics 2014-2015 KU Leuven