Wood Group mega-merger will create dominant player in a fragmented market

Post Thumbnail

Wood Group’s £2.2billion mega-merger will create a dominate player in a fragmented market, analysts today said.

Wood Group’s takeover of Amec Foster Wheeler will create a combined workforce of 64,000 and rank as one of the top 15 oilfield service firms in the world.

Audun Martinsen, VP of Oilfield Service Research at Rystand Energy, said: “The engineering and MMO markets have been very fragmented for a long time, so a market consolidation was not surprising.

“Wood Group have previously been active with mergers and acquisitions by acquiring Mustang and Alliance Engineering, Baker Energy and PSN, so it was expected that they would not squander this unique opportunity during a downturn in the market”.

Combined the pair had $14.2billion of revenues in 2015, of which about 40% is related to upstream services and the majority of that is associated with engineering and MMO, according to Rystand Energy.

“When Amec and Foster Wheeler merged November 2014, Wood Group saw them as a clear competitor to their upstream business. However, the timing of this acquisition was better positioned than when AMECFW merged at the brink of the downturn,” added Martinsen.

“The market outlook will still be challenging for Wood Group and AMECFW, but they should be able to leverage on their size going forward through realized synergies and dominating some markets. Now, it is only time before we expect their competitors to consolidate.”

Jamie Stark, partner at Scottish law firm Burness Paull, said the industry could expect more mergers.

“Wood Group’s proposed combination with Amec Foster Wheeler is the latest, and certainly largest scale, of consolidations in the oil & gas services sector.

“Born from a drive to reduce operating costs in response to the continuing malaise of the industry, it is of no surprise that the rate of mergers, of all scales, will continue.

“The latest combination of Wood Group and Amec Foster Wheeler offers the potential for increased global competitiveness by deepening the Wood Group’s project engineering and technical services delivery while also providing a catalyst for increased efficiencies through cost reductions.

“But what these larger scale combinations point to more strongly than ever, is a shift beyond the volatility of the oil & gas market to a more diversified industrial offering and the potential to offer those services to a wider industrial customer base. And as the global recovery of the oil & gas sector struggles to find traction, this trend is certain to continue.”

Read more about the merger, including who will make up the leadership board and how they plan to save costs here.