Oil and gas finance market gap analysis

In response to the challenges Scottish Enterprise commissioned a finance market gap analysis to explore the finance issues faced by companies within the oil and gas industry, in particular in supply chain companies, to consider if there are any gaps in appropriate finance supply. This study focused on the Aberdeen City Region, but was not restricted to the North East alone as the impacts of the downturn spread across Scotland. The report was to provide SE with intelligence to develop appropriate responses, as well as to contribute to ongoing activity in support of the sector.

Anderson Anderson and Brown LLP, with its long-standing roots in the industry were commissioned to undertake the study which comprised of a small number of focused consultations with companies from across the oil and gas supply chain, as well as a range of funders/advisors with significant experience in the oil and gas market.

Demand for short-term debt funding has decreased yet funders are willing to lend. There is a significant challenge to demonstrate the ability to service debt repayments. There is increasing demand for specialist invoice finance facilities however a stigma still exists with some businesses regarding invoice finance products. Demand for equity funding has fallen due to reduced M&A activity and it is currently challenging to demonstrate a compelling growth story. Equity funders are willing to invest, however they are currently cautious as businesses may not have “reached the bottom” of the downturn. Almost all Private Equity funds now require positive cashflow to invest which is not driven by current conditions. An increase in demand is expected for supporting distressed businesses and mergers should market conditions prevail over the next 6-12 months. A range of wider issues also emerged around the capabilities of management teams, late payment, the use of available professional advice as well as the role of Scottish Enterprise.

Evidence of two clear funding gaps emerged: 1. Technology businesses not generating positive cash flow looking for up to £5m equity funding. 2. All businesses seeking up to £2m equity funding.