Wood Group/Apollo: oil services group cannot ignore bidders forever

Wood Group began life in offshore oil services as a part of a family fishing business. Four decades on, private equity investor Apollo Global has trawled the UK market and found some potential. Wood Group’s shares rose 30 per cent in one day after divulging that it had rejected three Apollo offers up to 230 pence per share. That price would value the group, using net debt estimates for 2023, at about £2bn. Apollo sees opportunity in a sad City tale of poorly timed acquisitions.

Until 2017, Wood Group had a history of successful bolt-on company purchases, most well under $200mn. Former chief executive Robin Watson then decided that a big acquisition would plump up Wood Group’s market value. In 2017, he bought AmecFosterWheeler, a mishmash of oil services and engineering businesses, for more than £2.2bn.

Amec had already tried a similar strategy in 2014 when it paid £1.9bn for US-based FosterWheeler alone, points out Mark Wilson at Jefferies. Wood Group’s was no more successful. The share price has fallen 72 per cent since the purchase.

New-ish Wood Group chief executive Ken Gilmartin would like time to right the vessel. Meanwhile, Apollo has another 28 days under takeover rules to decide whether it wants to proceed. Given Wood Group’s record, shareholders should be interested in further information about Apollo’s interest.

Apollo could pay more. Even at 230p, Wood Group trades at an enterprise value about 5 times its forward ebitda, a fifth below Italian peer Saipem. Wood Group’s clearest rival across all businesses is Worley of Australia, which trades at more than twice the ebitda multiple. It is possible that there are more parts of Wood’s sprawling business to divest. A year ago, it managed to sell its Built Environment consulting unit — formerly within FosterWheeler — for $1.8bn (£1.4bn), or 18 times ebitda.

After years of drift, Wood Group finds itself on the sonar of private equity. While Gilmartin is right not to sell cheaply, he has yet to provide a compelling vision. Shareholders’ patience will wear thin if no engagement with bidders occurs.