Deal Reporter
John Wood Group (LON:WG), the UK-based international energy services company, anticipates it will see an improvement in the bolt-on acquisition landscape later in the year, according to CFO David Kemp.
On the company's 2Q15 sales and revenue call, the CFO said the company’s net debt was at the lower end of its preferred net debt-to-EBITA range of 0.5x to 1.5x and that it expected strong cash flow generation for the full year.
“M&A remains a focus and is our preferred use of cash,” Kemp said. “And we expect the environment for completing smaller bolt-on M&A to improve in the second half of 2015.”
In the Q&A session, Barclays Capital Securities analyst Haley Mayers asked the CFO to comment on the M&A pipeline and what type of businesses Wood Group was looking to add to its portfolio.
“[B]ack in February, we flagged that our appetite for M&A was undiminished,” Kemp replied. “But actually, we were seeing a slowdown in the market.”
He said the company typically bought private businesses, with fewer assets for sale at the height of the slowdown and deals harder to conclude. However, the CFO said the pipeline had improved as the year progressed, with Wood Group now having more visibility regarding the deals that are available.
“In terms of the types of deals we do, it’s largely as before,” he said. “We’re seeing a number of potential bolt-on acquisitions, which either give us more capability in a region or niche services or extend our geographic footprint.”
Asked by the same analyst if the company’s M&A efforts would be focused on Engineering or PSN, Kemp said its pipeline was across both areas.
Later on the call, Canaccord Genuity analyst Alex Brooks asked the CFO if there were further US onshore assets available in terms of acquisition.
Kemp said Wood Group’s transaction multiples had typically been in the 4x to 6x EBITDA range.
“We’re still seeing deals in that space,” he said. “We’ve been going through a buy-and-build strategy in key geographies. We feel as though we have good service lines in the geographies we have. But there still are some gaps.”
Wood Group is an independent services provider for the oil & gas and power generation markets. Services include engineering, procurement and construction management, facility operations & maintenance, and the repair & overhaul of turbines and other high-speed rotating equipment. It is comprised of three businesses: Wood Group PSN, Wood Group Kenny and Wood Group Mustang.
The company’s last notable acquisition was the late 2014 purchase of Oregon-based Swaggart Brothers, a provider of civil construction and fabrication services, for USD 36m.
Wood Group announced in mid-July it had reached an agreement with Agility Group to acquire Agility Projects, a Norway-based engineering, procurement, construction management, installation and commissioning company, for approximately NOK 1bn (USD 128m). The deal closed in September.
In addition to Agility and Swaggart, Wood Group made a number of smaller bolt-ons last year, including North Dakota-based welding repair shop Meester’s Welding, Texas-based Cape Software and Calgary-based pipeline consultancy Sunstone Projects.
Wood Group has used in-country law firms for numerous deals in the past decade, including Norway-based Wikborg Rein & Co for the Agility transaction. Texas-based firms Baker Botts and Haynes and Boone have each been used for multiple US-based buys, with the latter used for Meester’s.
For its late 2010 purchase of PSN, Wood Group used Credit Suisse, JPMorgan Cazenove, Slaughter and May and Clayton Utz. Wood Group’s 2014 annual report names Slaughter and May as its solicitor.
Wood Group has a market capitalisation of GBP 2.5bn (USD 4bn).