6 | The Deloitte M&A Index H1 2015 The Deloitte M&A Index H1 2015 | 7 Impact of oil prices on M&A Oil companies were under pressure to deliver growth and Number of negative profit warnings returns even before the collapse in oil prices. Between 10 December 2008 and June 2014 the S&P Global Oil Index 10 9 annual returns were 10.9% compared to the S&P Global 8 1200 Index that on average returned 13.0%. 6 6 6 5 4 S&P Global 1200 Index vs. S&P Global Oil Index 2 rebased to the end of 2008 0 Q1 Q2 Q3 Q4 Q1 250 2014 2014 2014 2014 2015 YTD 200 The immediate impact was a rise in profit warnings. Since 150 the beginning of 2014, we estimate that 36 oil companies have issued profit warnings… 100 50 0 Cash reserves and debt of S&P Global Oil Index 14) 2008 2009 2010 2011 2012 2013 constituents (2000- Price of Brent vs. M&A deal volumes by oil and $bn gas, petrochemicals and pipeline companies as acquirers S&P Global Oil Index S&P Global 1200 Index 1400 (2000-14) Source: Bloomberg; Deloitte analysis 1200 $/bbl Deal volumes 1000 1400 800 120 600 100 1200 400 80 1000 Price of Brent 200 60 800 $/bbl 0 40 600 150 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 400 20 200 Cash reserves ($bn) Debt ($bn) 0 0 100 …at the same time the cumulative debt of the S&P 200020012002200320042005200620072008200920102011201220132014 Global Oil Index constituents has reached more than Brent ($/bbl) Deal volumes 50 $1 trillion in 2013, outpacing the growth on cash reserves. This presents a challenge for both debt • We estimate that 26% of the companies in the Index servicing and refinancing … hold 80% of the cash reserves. Companies with 0 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Capital expenditure of S&P Global Oil Index constituents strong balance sheets may want to acquire assets at 4 attractive valuations. The current environment creates (2008-14) Brent crude oil price Capex ($bn) Capex growth rate, % opportunities for companies to use M&A to reposition 800 30% themselves Source: Bloomberg; Deloitte analysis 700 The sharp decline in oil prices has created a new set of 600 20% challenges for the oil industry. 500 10% 400 0% • We expect some consolidation deals as many oil 300 production and services companies now need to 200 -10% 100 focus on cost reduction due to cut backs on capital 0 -20% 2008 2009 2010 2011 2012 2013 2014 expenditure. S&P Global Oil Index Capex ($bn) Capex growth rate, % …and also placing additional pressure on capital 4. 7 companies are yet to report their capital expenditures for Source: Deloitte analysis based on data from Bloomberg, Thomson One Banker and Factiva expenditure investments. 2014, Bloomberg estimates are used instead