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Money Available $30 million, the sales multiple would There is more
be six. money on the
There is more money on the sidelines today than
sidelines today than at any time in Recently, Allegiance Capital has at any time in U.S.
U.S. history. According to Wall Street seen an uptick in sales multiples. Last history. According to
sources, there is approximately $1.1 year, good O&G services companies Wall Street sources,
trillion dollars waiting to be invested. were selling for multiples in the 4 to 5 there is approxi-
I have seen that investors are looking range. This year, we have seen those mately $1.1 trillion
for high-quality, successful companies increase to the 6 to 7 range with even dollars waiting to
they can purchase or invest in. More higher multiples for companies that be invested.
oilfield services companies are coming are technology-based, hold patents, or
on the market this year than at any possess other special factors. recent Energy Information Admin-
other time in the past. istration (EIA) forecast predicts that
Even the Warren Buffet Indicator, more than half of our energy needs
Investors always want a good a special Wall Street measure based will be fulfilled by oil and natural gas
return on investment, and O&G upon the values of companies sold products through 2040 and beyond.
services companies are very profitable compared to historical values, shows There is little fear that demand will
right now. Investors who have a long- middle market companies selling in evaporate any time soon. In fact, the
term vision can afford to ride out any the “significant premium” range now. EIA is forecasting that we will produce
potential downturn in oil prices and As a comparison, companies sold more oil than we import in 2014.
still make a nice return. That is why immediately following the crash of
they are ready and willing to invest in 2008 were valued in the “significantly High Value of New
these companies. discounted range” on the scale. Technology
Buyers Willing to Pay More Thus, we have a perfect storm for According to the American Petroleum
sellers right now. There’s an abundance Institute, the U.S. leads the world in
Currently, there are not enough of cash available to buy companies. technological innovations within the
high quality companies for sale on the There’s a shortage of companies for sale, O&G industry. These innovations have
market. Whenever the demand for a and the demand is high. That means not only improved O&G efficiencies but
product or service increases and the owners can get a better price for their
supply decreases, the value of that company and better terms right now
product or service will increase. than they could in the past.
The value of most companies Enduring Demand for
is determined by a multiple of the Fossil Fuels
company’s earnings. For example,
if a company earns $5 million in While the demand for renewable
profit or earnings before interest, energy sources keeps growing, fossil
taxes, depreciation and amortization fuels continue to provide a significant
(EBITDA), and the company sells for percentage of U.S. energy needs. A
NBIZ ■ August 2014 25
