Oil & Gas
The Hydrocarbon Energy market extends from shale and shallow gas to oil and heavy oil, just to name a few of the sectors. Although global in structure, each geographic market is quite unique with its own set of drivers. Recent global economic turmoil has weighted heavily on the energy markets around the globe. In North America, the industry has continued increasing the efficiency of extraction and production processes through technologies such as Multi-stage Fracturing and Horizontal Drilling. Most, if not all, Oil and Gas Markets are in a surplus position and given the price sensitivity of these markets, it is unlikely to see any upward price movement until the North American economy moves forward with sufficient impetus to work through its surpluses. As the resolution of market excesses may continue until late 2012, junior and mid cap producers will continue to struggle on the edge of subsistence. Consolidations and asset rationalization will continue to be the norm. Current dynamics and valuations represent an excellent buy side opportunity. Value today is driven more by the experience and the success record of management of these companies subject to engineering confirmation of the production and proven potential of the asset. Those with the where-with-all to partake of this buy window opportunity have been encouraged by the support of E&P Private Equity Funds.
Oil and Gas Services
With Oil and Gas Exploration and Production ventures buffeted by the economic maelstrom, the Service Sector faced an unparalleled drop in utilization rates and a contraction in the asset base as rigs were withdrawn in numbers not encountered over the past two decades. From a market typified by high prices or costs and low availability, service suppliers faced the need to cannibalize their asset base and lay off both production and field staff. Recently activity levels have been encouraging. As expanding current service capacity will take at least nine months and as current energy surpluses will take 12 to 18 months to be rebalanced, we do not anticipate a return to service shortages until 2013. Until such time, capital or Private Equity Funds will favor service providers with leading utilization rates with minimal debt exposure and or special situations. Special situation investments focus on technologies and/or niches that will expand exponentially in any price scenario. Generally they are in the early growth stage, that is the technology or specific service has been accepted but has not yet received broad market adoption. These niches, to name just a few, include environmental and waste management systems and technology, cementing and drilling fluids, drilling tools, downhole logging and measurement and seismic data interpretation systems.
High Tech
The first generation exponential growth demonstrated by the Internet and wireless sectors worldwide has given way to Generation 2 High Tech. Although the profusion of apps/services, media and input/output devices from multi-media smart phones to tablets seems daunting on wireline and wireless communication networks, opportunities abound from end-user and devices to the service provider. Networking has expanded from collaborative platforms to encompass Social Networking, which rivals the Internet’s exponential adoption rate. Paralleling this trend, Cloud Computing has enabled groups to access shared vaults and files. Software as a Service (SaaS) has increased the availability of applications and dramatically reduced time to market. These trends have led to challenges for Data Centers, Data Protection and Integrity, Security and Storage, just to name a few. These trends have been mirrored in the Software sector. Here as well we have seen what we refer to as the Collaborative Strain. Here the strain is evident by the growth of collaborative development tools and the use of Open Source API Tools and Code Management. We have only touched the surface of this massive opportunity set; a set which is pervasive, global in opportunity and is constantly in flux. Of particular interest to Private Equity Funds are those opportunities that have established a market presence or revenues based on a differential advantage which will weather the endlessly changing seascape of this industry, that is, it offers an resilient evolutionary path to new opportunities and markets.
Food
The impact of the recession and fragile consumer spending will continue to influence the food market, making this sector highly competitive. Nonetheless, there is strong demand globally for healthful foods, sports nutrition and protein fortified products for key areas of weight management, healthy aging, infant formula and fortified bar and beverage markets. Food processors will focus on “greener and cleaner” in response to consumer demand for the least complicated ingredient list on a product. Increasingly, consumers are seeking functional and practical benefits such as anti-oxidant and anti-inflammatory qualities as part of the movement toward more responsibly crafted healthful products using natural and naturally derived ingredients. Navigating the future of healthful food and drink products in the next few years will involve caution, to be sure, but currently the field has never been better.