Activist investors are looking for new bets, and their next picks could be in the downtrodden oil patch.
After a rebound in commodity prices and amid subsiding sector worries, three sources who spoke to CNBC think billion-dollar hedge funds that have in the past nudged corporate boards toward bigger buybacks and dividends will next look for investments in the energy sector. And that could lead to the next wave of M&A deals big and small in the oil and gas sector.
"Energy companies are going to start seeing pressure from their lenders, and from their shareholders, to start cutting deals now that there has been a stock market rebound," one banker who works on activist deals said. "Anyone who bought in at the beginning of this year is looking for ways to maximize profit."
For many big oilfield services companies, share prices have rebounded after falling earlier this year — but stocks are still well off their highs of 2014, before commodities tanked. The same can be said for energy-industry bonds, ranging from investment-grade paper to high-yield debt, despite commodity prices not keeping pace with rising stocks.
Still, some companies that could be targeted for deals have not fully rebounded. One source said that could be a hang-up for investors who bought into the sector while oil was highly valued, who are still in the red from the 2014 plunge in commodity prices. Even in a year where Washington regulators are killing deals left and right (including the now-defunct Baker Hughes-Halliburton combination), there is appetite for major mergers and acquisitions, a lawyer who works on sector deals said.