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Few outside the energy industry and Scotland would have ever heard of the Wood Group. But since the start of 2023, the Scottish engineering company, which has struggled to recover from an ill-fated takeover deal, has enjoyed several moments of glory.
The first buyout group, Apollo, made five approaches but eventually gave up their pursuit. Now a Dubai-based company that once pursued Wood’s Australian rival Worley has set its sights on the FTSE 250 engineer.
Wood’s departure would undoubtedly lead to even more wrangling over the state of the London market. Still, this is a prime example of how take-private deals from troubled companies can’t be a bad thing.
Sidara has proposed paying 205p a share for Wood, valuing the company at over £2bn this year, taking into account net debt forecasts. Sidara, formerly called Dar Group, already owns a small energy services company, Penspen, and is particularly interested in Wood’s business in the U.S., which accounts for about 35 percent of sales.
Sidara’s already rejected offer was at a 41 percent premium to Wood’s three-month average share price. Still, it’s 15 percent below Apollo’s final proposal of 240p, which was withdrawn almost exactly a year ago. A Sidara approach at a similar level – which seemed high at the time – should be attractive to Wood’s long-suffering shareholders.
It’s true that Wood has made progress in his recent turnaround since Apollo’s departure. First-quarter Ebitda improved 4 percent year-on-year despite a 6 percent decline in revenue as the company takes on higher-margin orders.
But it’s slow and clunky. The company said Thursday that net debt, which was nearly $1.1 billion including leases at the end of last year, would be at a similar level at the end of 2024. Wood struggled to quickly reduce his debts as promised following the 2017 acquisition of Amec Foster Wheeler, which left him with both debt and legal liabilities.
Wood had already postponed his expectation of generating significantly positive free cash flow by one year to 2025. Newly hired chief financial officer Arvind Balan, previously finance director of Rolls-Royce’s commercial aerospace business, has promised a greater focus on working capital. But the cultural change he envisions takes time.
A figure close to Apollo’s last offer would value Wood at a forward Ebitda multiple of more than seven times, which seems fair compared to other European oilfield services groups. Investors’ patience was put to the test. They would be forgiven if they had pushed for Wood to return to relative anonymity – this time as a private company.