Aroon Sequeira on 2018: Looking ahead and it’s looking up

The start of another new year had me reflecting on my 35-plus years of practice. My career started in 1981, one year after the National Energy Program was announced as part of the federal budget; a response to the oil crises of the 1970s and the inflation and unemployment that followed.

Since then, I’ve seen many ups and downs. Part of the wisdom that comes with experience is understanding the cycles, especially in energy services, an area where Sequeira Partners focuses. High prices drive investment that results in greater supply, but then supply ultimately lowers prices and the cycle goes on.

We closed out 2017 with our annual, sold-out Energy Services Symposium. The majority of trends we’re seeing now, we’ve seen before. What’s new, is the breakneck speed of technology disruption. Advances in fracking and other drilling technologies mean supply is brought on more quickly. As a result, the U.S. has become a prolific producer of oil and gas, diminishing the power of the once-mighty OPEC.

Our audience heard a consistent message from a diverse panel and keynote Richard Spears – one of the leading authorities on the oilfield services business. The 12 months ahead will be better than the 12 to 24 months behind us. And while it’s unlikely we’ll see a return to $100/barrel oil anytime soon, activity levels and oil prices are emerging stronger.

The improved outlook has broader implications beyond oil and gas players. What’s significant, is that these trends are going to drive transaction activity in Western Canada and present numerous opportunities in the months ahead.

If your company’s growth plans were put off during the downturn, now would be a good time to revisit your strategy. And since I’ve already revealed my number of years in business, here’s an old-timer’s advice on how to maximize value in 2018:

Ask whether now is the time to transact. The gap is narrowing when it comes to buyer and seller expectations and we anticipate a transaction rich environment because of it. Motivation to wait for the bottom of the market has shifted to concern over missing an opportunity to transact at reasonable valuations.

Focus on growth. Companies are moving from inward-looking cost-cutting measures to seeking growth in an improving market. If you’re selling, make sure you differentiate yourself. Those with proprietary products and services will fare better in 2018 than the so-called ‘me-too’ businesses. Buyers will be looking for stand-out companies that have achieved differentiation, strong management teams and a broad customer base.

Count on private equity as a driver. While strategic acquirers have strong balance sheets and are looking to grow through acquisition, private equity has an unprecedented amount of dry powder to be deployed – estimated at upwards of $700 billion. As a result, PE is driving transaction activity and often paying compelling multiples. We’re seeing a renewed interest in Western Canada and an aggressive pursuit of transactions.

Follow the much-anticipated succession wave. BDC recently reported that an estimated 41% of Canadian entrepreneurs intend to sell their businesses over the next five years. If you’re a seller – and there are a lot of you – it’s a good time to look at liquidity options now.

Whatever your business motivation in 2018, we can all take comfort in knowing that it’s going to be a happier new year than the two that preceded us.

We look forward to serving you this year. Stay tuned for our quarterly communications on trends impacting valuations and transactions.

Sincerely,

Aroon