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Conference Presentation delivered by Nick Assef at Excellence in Oil & Gas Conference in Sydney at the Hilton Hotel on 12th March 2014. Presentation covers a number of Macro Strategy issues pertaining to M & A activity at present - including referring to both deals and valuations
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Oil & Gas Services M & A Prepared for 9th Annual Excellence In Oil & Gas Conference, 12th March 2014 Resourceful Events Nicholas A. Assef LLB (Hons), LLM, MBA
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Workbook Contents
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1. Macro Sector & Regional Drivers - Upstream
2. Deal Environment & Drivers
3. Valuation Arbitrage? Cross Border Observations
4. Strategic Due Diligence: Current Deal Challenges
5. Northern Hemisphere Deals: Samples of Specialists
6. Opportunities & Trends
LCC is a specialist M & A Firm that is skilled at leading Directors and Senior Management through the complex Strategic, Financial, Governance & Project Management requirements of Public Transactions Since 2011 LCC has advised on c. A$500m in closed M & A transactions, c. A$300m in associated deal financings and is currently advising on a range of complex M & A and advisory transactions – including the renegotiation of a multi decade royalty arrangement with Life of Royalty value c. A$1.5b LCC’s weekly market research updates include M & A activity in the Engineering & Contracting sector in Australia
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Macro Sector & Regional Drivers - Upstream
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Macro Picture Looks Attractive, But Many Challenges………..
0
5000
10000
15000
20000
25000
30000
Australian Energy Exports
LNG Crude Oil
Announced 9%
Feasibility 21%
Commi7ed 66%
Completed 4%
LNG, Gas, Oil Major Project Pipeline
$294 Billion in “Notional” Projects
ü Multiple Gas precincts c. Australia × Capital deployment priority – cheaper taxing nations ?
ü South East Asia demand – effects Fukushima ? × US an advanced cheap producer of Oil & Gas (gas glut ?)
ü Government desire royalties / cashflows × Australian track record hitting timetable / budget ?
Source : BREE, LCC Calculations
Gas Exports Trending Up
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Company Ticker Market Cap ($A) TEV / EBITDA (A) Deal Count^
SeaDrill NYSE : SDRL 18,381$ 12.80x 10Jacobs Engineering NYSE : JEC 9,194$ 11.00x 15 Acquisition in 2013 of SKM Consulting for A$1,300mQuanta Services NYSE : PWR 7,690$ 9.20x 6 Acquisition of NACAP for A$100mChicago Bridge & Iron NYSE : CBI 8,940$ 11.00x 4 Included US$4.9bln merger with Shaw Group in 2012McDermott International NYSE : MDR 2,146$ 9.00x 2 Last -‐ DEEPSEA Group offshore Oil & Gas ServiceEmcor Group NYSE : EME 3,400$ 10.50x 6 Acquisition of USM from TSE for $225m in June 2011
10.58xUnweighted Mean
Specialist Offshore Driller. US$1,06m merger with Scorpion Offshore in 2010
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Deal Environment & Drivers
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Cross Border / Foreign Direct Investment • Capitalise on market imperfections & expanding market
opportunities • Follow local Upstream client cross border • Seek higher margin markets • Enter / expand on sustainable Projects • Deal with Regulatory & Union issues efficiently ü Valuation Arbitrage ü Abundance of Capital in North America ü Overall Deal Momentum Lifting
Domestic M & A Rationale • Geographic balancing (West & East Coast) • Institutional Investor sentiment (O & G exposure ?) • Seek higher margin sub markets (not commoditised) • Diversify Revenue & Client Base • Liquidity Events For Smaller Players • Valuation arbitrage × Limited Debt Financing for M & A × Bidder Valuations Depressed vs Northern Hemisphere × “Opportunism” vs Strategic Valuations Prevail × Strong Balance Sheet The Priority × PE rotated away from sector – for moment
Mining Boom Over ?
Large Diversified Engineering & Contractors – Value in A$m ^ Deal Count since 1 January 2010 Source : Company Data, LCC Research
Just Corporate : Also high interest from Offshore PE / Pension Funds M & A back in vogue : In Australia many “Toehold” deals
Distressed Deals
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Valuation Arbitrage? Cross Border Observations
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North American Public Company Sample
Australian Public Company Sample Company Ticker Market Cap ($A) TEV / EBITDA (A)
Southern Cross Electrical ASX : SXE 130 3.10x Specialist Electrical Player. Valuation multiple skewed because c$30m Cash (Low Debt)WDS ASX : WDS 164$ 3.90x Valuation multiple skewed because c. $45m Cash (No Debt). LCC assumes circa A$32m EBITDA FY14AJ Lucas ASX : AJL 260$ -‐ Exploration & Production Drilling, Pipeline. division focussed CSGDecmil Group ASX : DCG 362$ 4.20x Acquired Eastcoast Development Engineering for A$30.12m in Feb 2013Tox Free Solutions ASX : TOX 446$ 7.30x Upstream & downstream Oil & Gas waste & industrial servicesMermaid Marine ASX : MRM 554$ 5.50x Marine Logistics. Itchtys Gas project 2 Platform Supply Vessel deal @ $145m contractSkilled Group ASX : SKE 740$ 10.20x Historically Labour Hire, but acquired Broadsword Marine Contracting in Darwin for A$72m in June 2013Monadelphous ASX : MND 1,615$ 6.10x Recently won large Gas FM project -‐ A$150m @ Woodside's Karratha Gas PlantWorleyParsons ASX : WOR 4,082$ 9.70x Strong Off shore & Onshore presence in Hydrocarbons Division
Unweighted Mean 5.86x
Company Ticker Market Cap ($A) TEV / EBITDA (A) Deal Count^
SeaDrill NYSE : SDRL 18,381$ 12.80x 10Jacobs Engineering NYSE : JEC 9,194$ 11.00x 15 Acquisition in 2013 of SKM Consulting for A$1,300mQuanta Services NYSE : PWR 7,690$ 9.20x 6 Acquisition of NACAP for A$100mChicago Bridge & Iron NYSE : CBI 8,940$ 11.00x 4 Included US$4.9bln merger with Shaw Group in 2012McDermott International NYSE : MDR 2,146$ 9.00x 2 Last -‐ DEEPSEA Group offshore Oil & Gas ServiceEmcor Group NYSE : EME 3,400$ 10.50x 6 Acquisition of USM from TSE for $225m in June 2011
10.58xUnweighted Mean
Specialist Offshore Driller. US$1,06m merger with Scorpion Offshore in 2010
Source : Company Data : LCC Research
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EMCOR Group Inc. (NYSE : EME)
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Source : Company data, LCC Calculations, CapitalIQ, Bloomberg
Consistent M & A activity since 2010, including acquisition USM from TSE for c. $230m
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Jacobs Engineering Group Inc. (NYSE : JEC)
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11 of 15 deals executed when TEV / EBITDA Multiple Higher than 8.0x (A)
TEV
/ EBI
TDA
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Rapid Fire Deal Window 7 Deals in c. 8 Months “Deal Momentum”
Source : Company data, LCC Calculations, CapitalIQ, Bloomberg
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Strategic Due Diligence: Current Deal Challenges
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Each Deal Is Different : On High Alert For Areas That Can Cause Margin Collapse
Client Lists
Recent CAPEX Spend
Contract Waterfall
Technology vs Plain Vanilla
Union & Personnel Issues
Health & Safety Issues
Variations & Claims
Outstanding
• Spread of Clients • Project Lifecycle • Client Pedigree
• CAPEX Starved ? • CAPEX Bubbles • Current Competitiveness
of Kit – Technology Shift
• Term of Contracts • Style of Contract
- Fixed - Open Book - Cost Reimburse
• How Technical Work ? • Competitors for Work ? • Cost of Technology ? • How Easy To Replace
Contractor on Site ?
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• Delays in Payment • % of Actual Claim or
Variation • Track record of Sponsor in
Resolving • Who the Sponsor is
• Safety Standards • Effect On Insurances • Harmonisation of Work
Standards
• Union Presence On Site • Key Personnel - Roles • Relationships With Client • Employee Benefits - Accommodations
• Schedules where FIFO
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International Deals : Samples of Specialists
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Natural Gas Partners LLC www.msenergyservices.com 6.86x **
Onshore gas field Horizontal Directional Driller (USA)
Alta Disposal www.altadisposal.com 7.00x ** Oilfield Waste Disposal – including
Fracing Water (Canada)
Intertek Group PLC www.int-inspec.com 6.17x
Onshore & Offshore Non Destructive Testing & Inspection Services
(Norway)
EQT Partners AB www.akersolutions.com 6.9x Well intervention services including
well casing, testing, metering & wireline services (Norway)
** Minority Interest Deals
Business Growth Fund PLC www.spex-innovation.com 6.14x
Offshore recovery, severing & explosives operator
(Scotland)
HitecVision AS www.reefsubsea.com 7.81x Offshore Construction, trenching &
cabling Fleet Operator (Norway)
Onsh
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Offs
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CSG, Shale & LNG Driven Demand ACQUIRER TEV / EBITDA
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Opportunities & Trends
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Deal Activity Will Continue – In Particular Cross Border Deal Activity In Marine & Unconventional Gas
Planets are aligned for ongoing Cross Border activity ü Weak AUD compared to 12 months ago ü Ongoing strong Onshore & Offshore Project Pipeline ü Unconventionals (CSG, Shale Oil) ü High International Valuations ü M & A Activity Warming Up In Northern Hemisphere ü High Access To Capital In Northern Hemisphere ü Good Pipeline of Potential Projects ü Weak Domestic Valuations ü Difficulty in Deal Financing (Debt and Equity) ü Reasonable “Public” Domestic Balance Sheets (Targets ?) ü Deal “Challenges” May Go To Value/Structure or Kill Deals
Baytex Energy acquires Aurora Oil & Gas for A2,316m. Assets include Eagle Ford Shale Belt in South Texas
(Both complex service delivery areas)
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PHILANTHROPY lincolncrownefoundation.org The Lincoln Crowne Foundation is an extension of the Firm’s corporate social responsibility arm that director, Nicholas Assef initiated.The foundation’s main purpose is to support and extend partnership development to grass roots charities. GOVERNANCE unglobalcompact.org We are governed by our commitment as a signatory to the UN Global Compact. The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies to ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. ACADEMIA bond.edu.au LCC and Bond University has established a relationship around the importance of success, academic integrity and outstanding performance. To this end, LCC has sponsored various faculty awards in both the Business and Law Schools. SPORT lincolncrownesailing.com.au LCC has sponsored 12 and 16ft skiffs in Sydney, over numerous sailing seasons and championships. In partnership with Variety the Children’s Charity, Nicholas Assef proudly supported the Variety Port Jackson 12ft Skiff Championships. This event marked the launch of a series of projects committed to raising support for Alopecia Areata, which is a medical condition of which there is no known cure.
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LCC’s Community Focus
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Contact us
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AUSTRALIAN OFFICE Suite 1, Level 30 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Australia Correspondence GPO Box 4154 Sydney NSW 2001 T: +612 9262 2121 F: +612 8088 1239
PRESENTER Nicholas Assef [email protected] T: +612 8288 8688
HONG KONG REP OFFICE 20/F One International Finance Centre 1 Harbour View Street Central Hong Kong HONG KONG T: +852 3960 6532 F: +852 3669 8008
AFSL 278054 ACN 105 807 645
www. l cc .as ia
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Important Information
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