Low oil prices are weighing heavily on UK service firms and are stoking concerns that some companies may not be able to survive the price rout.
According to analysis conducted by EY and seen by the Telegraph, revenues for the top 100 services firms in the UK fell 18 percent in 2015 and could drop by another 5 percent this year.
The steep revenue decline has sparked concerns that up to a third of UK service firms could be vulnerable to bankruptcy, the Telegraph said.
Services firms have been struggling since upstreams began cutting spending by an average of about 20 percent last year.
According to EY, the slump in service sector revenues could set the stage for a slew of merger and acquisition deals.
However, there was a marked decline in service sector transaction activity in 2015 with the number of deals falling from a high of 406 in 2013 to just 193 deals last year.
While the last two years have seen megamerger deals between Halliburton and Baker Hughes and Schlumberger and Cameron, the total disclosed value of deals fell 67 percent year-over-year in 2015 to $11 billion after adjusting for those transactions, EY said.
Last year, the total disclosed value of service sector mergers plummeted $45 billion from 2014 levels to $26 billion as the average value of disclosed deals fell to $335 million from $600 million in 2014, according to EY.
“Oil prices are expected to stay lower for longer in 2016, which could potentially signal an uptick in M&A as sellers with lofty price expectations realign and buyers become less opportunistic and more strategic in their view,” EY said.
EY added that strategic partnerships and joint ventures may also become more popular in the service sector as companies look for ways to “mutually benefit from corporate combinations rather than full-blown M&A.”