M&A Best Practices: Fast-Track Economies of Scale

Print 🖨

Every business wants to grow and growth needs strategy. In energy, one strategy for continued growth is M&A, especially when the market goes into increased volatility. Year-to-date globally, there are 256 upstream deals with a value of $88.24 billion. This week, i3 Energy closes its acquisition of strategic Central Alberta assets from Cenovus Energy for $54 million.

While Enverus analysts predict it’s very unlikely we see the scale of consolidation from 2Q21 (seven deals >$1 billion) during the rest of the year, there still should be a steady stream of smaller sized pickups as companies look to sell non-core assets. Plus, even if competition for core inventory in the Permian, Bakken and Haynesville may have escalated, there still looks to be plenty of opportunities for reasonably priced deals, including PDP assets in other areas. We may just have to wait until after early September to see them.

The driver of these deals is economies of scale. But to actually benefit from economies of scale, you must first determine which company has the best practices and then plan how to implement these across a new, larger organization.

So how do you figure out which best practice is better between company A and B?

1) Digitalize back-office processes

Processes are linked closely to the back office. Digitalization of the back office lays the groundwork that creates the opportunity for economies of scale before, during and after an M&A situation because it enables faster, more collaborative workflows between different stakeholders within a company, increasing operating efficiency. It captures spend data that, when attributed and categorized properly, enables two companies to rationalize spend analysis across both organizations.

2) Gain spend understanding across both organizations

Spend understanding allows you to rationalize spend and the supplier networks of both companies. This intel can identify opportunities for additional savings and pinpoint preferred vendors.

To get deeper insight on fast-tracking economies of scale in oil and gas M&A, check out our eBook, Best Practices In M&A, at the link below.