John Wood Group agreed to acquire Amec Foster Wheeler in an all-share deal that values the UK engineering-service provider at about £2.23 billion.
The takeover comes after several years of pressure on profits for service providers in the energy industry as the slide in oil prices forced clients to rein in spending and defer large projects. By merging, these engineering companies aim to cut costs, diversify and become more competitive. Among recent deals, General Electric agreed in October to merge its oilfield-services arm with Baker Hughes.
“Wood Group becomes a larger, more diversified and higher-scale business in terms of global presence,” said James Hubbard, a London-based analyst with Numis Securities. “The implicit price is 10 times consensus estimate earnings for this year for Amec. That’s bang in line for historic trading average and most would say that’s a perfectly reasonable price to pay.”
Amec shareholders will receive 0.75 new Wood Group shares for each Amec share they hold, Wood Group said Monday. Based on the March 10 closing price, the terms of the acquisition represent a premium of almost 29 per cent to the 30-day average, according to a statement.
Wood Group shares rose as much as 8 per cent and were 5.5 per cent higher at 793.5 pence as of 10:10am in London. Amec jumped as much as 23 per cent, the most in more than 20 years.
The takeover will create a company with a market value of about $6bn, making it among the biggest oil-services companies in Europe, ahead of Saipem and Petrofac. The deal is expected to grow adjusted earnings per share in the first full year, according to the statement.
“The combination represents a transformational transaction for Wood Group, which accelerates our strategy and creates a global leader in project, engineering and technical services delivery across a range of industrial sectors,” said Wood Group chairman Ian Marchant, who will retain that position in the combined group.
Robin Watson and David Kemp, chief executive officer and chief financial officer of Wood Group respectively, will also remain in these roles. Four members of Amec’s board will join the new board.
Wood Group put pretax cost synergies at a “run rate” of at least £110 million a year by the end of the third year after completion.
The acquisition has been unanimously recommended by the boards of both companies. It is expected to become effective in the second half of 2017. The deal will also have to be approved by competition authorities including those in Australia, Canada, Kazakhstan, Turkey, the UK and the US, according to the statement.
Wood Group’s full-year sales and profit both missed analyst estimates with revenue dropping 16 per cent to $4.93bn and net income tumbling 65 per cent to $27.8m. Mr Watson said last month challenges will persist this year.
Still, the company said then it’s seeing “early signs of improvement” in its core US onshore market, particularly in the Permian Basin that spans Texas and New Mexico. By contrast, the UK North Sea, where Wood Group got almost 40 per cent of its revenue two years ago, now accounts for just 20 per cent, he said.
* Bloomberg
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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