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Texas M & A Declined in 2015

October 2016 Newsletter Article 2015 was the biggest year ever on a global scale for mergers and acquisitions. There were $4.7 trillion in announced mergers and acquisitions, which was an increase of 42 percent from 2014. However, the number of deals involving mergers and acquisitions in Texas declined in 2015. The year in 2015 was so abysmal that some deals that did get consummated eventually fell apart. The recent data shows that mergers, acquisitions and joint ventures involving Texas businesses have declined for five consecutive quarters through the first quarter of 2016. Corporate deals in Texas in the first quarter of 2016 declined 8% from the number of transactions during the first quarter of 2015. Mergermarket reports that, during the first three months of 2016, Texas businesses were involved in 110 mergers, acquisitions, joint ventures or divestitures with a combined value of $38.6 billion. By comparison, there were 159 such deals valued at $112.6 billion in the third quarter of 2014, which is when M&A activity in Texas peaked after the end of the 2009 recession. From 2008 to 2014, M&A were consistent in Texas even though on the decline almost everywhere else. During these times the energy industry, especially oil and gas, was flourishing. As the oil and gas industry is now on the sharp decline, the opposite effects are occurring. During the final three months of 2015, there were forty-two (42) oil and gas transactions (with values greater than $50 million) accounting for $31.6 billion, compared with seventy (70) transactions valued at $103.4 billion in the fourth quarter of 2014, a 69 percent decline in total deal value. In 2015, there were 179 transactions worth $196.1 billion, down from the 278 transactions valued at $304.4 billion in 2014. Some lawyers and investment bankers predict energy M&A could fall even more in 2016. One of the main reasons for the record amount of M & A activity globally in 2015 was the high amount of cash reserves held by companies. In contrast, Texas companies had far less cash to utilize for borrowing and dealing in 2015. The accelerating decline in oil and gas prices along with the closing of capital markets for oil and gas companies during the second half of 2015 drove companies to focus on preserving cash. The longer oil prices are low, the longer affected Texas companies will limit their cash flows while attempting to figure ways to adapt their business models and move forward. This poor state of economic affairs in 2015 affected three of the largest transactions of the last two years: Energy Future Holdings' proposed sale of Oncor utility business to the Hunt family for $18 billion; Energy Transfer Equity's $38 billion attempted acquisition of Oklahoma-based Williams Companies; and Halliburton's $28 billion attempt to merge with Baker Hughes. These deals have more or less dissolved albeit with some, although little, chance of resurrection. Typically, the justification for M&A is the combination of reduced costs of doing business and increased revenue from acquiring a greater share of a targeted market. These positive characteristics for such deals still exist despite the state of the Texas M & A landscape. At R. D. Adair, PLLC, we can assist any employer in any business situation, including merging with or acquiring another business enterprise to grow and move forward in the years to come.  


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