Formal completion of a £906million deal that takes Abbot Group off the London Stock Market and into private equity is imminent.
All paperwork is expected to be signed off by March 7 – Abbot will then be free of the vagaries of a stock market that the company’s chairman believes has failed to appreciate its value.
There is little or no likelihood of First Reserve being trumped in the closing minutes of a game that has seen other P/E providers sniff the opportunity, but walk away, including 3i. Chairman Alasdair Locke is in no doubt that teaming with First Reserve is in the best interests of the Aberdeen-headquartered group.
“I’m sure there isn’t anybody out there, nor a trade buyer,” says Locke.
“This has been a properly run competitive auction process that First Reserve won. Lots of trade have been interested, but they recognise that we’ve done a deal with First Reserve. This is very much something that the management and I instigated. It’s what we want to do.
“In theory, there is always the ability for someone to step in. Almost until March 7 it’s possible for somebody to intervene and put a higher offer in. But they would have to be definitive. In practice, I’d be staggered.”
Locke is regarded as one of the most skilful company builders in Aberdeen.
The manner in which he picked up KCA Drilling, placed it at the heart of what was essentially a shell company and capitalised on the brand’s reputation and management team strengths to create Britain’s only drilling company with real clout is a classic tale of determination and calculated risk-taking.
“Abbot was my private company that acquired KCA in 1992,” says Locke.
“We went public in 1995 and it’s a company that I have, one way and another, led and controlled to a certain degree ever since.
“We have used public marketplaces to enable us to grow over the years. But we got to the stage when I came to the conclusion nearly a year ago (late Q1 2006) that the public marketplaces were clearly not valuing Abbot at the right price.
“So I set off down the private-equity route because what we want to do is grow this business … we could double the business again (from $2billion to $4billion) over the next three or four years, which is really what we want to do.
“We have a plan, we had/have a strategy to grow the business. Prior to the First Reserve decision, we felt we were doing extremely well with that plan, but we were getting an increasing level of criticism from the City … in our view misinformed, misjudged, and some even saying that we weren’t delivering fast enough.”
Locke is clearly irritated by the City’s failure to understand the upstream oil&gas service sector, and Abbot in particular. If anything, the company had been performing above management expectations, so why didn’t the City understand?
“There was no magic wand that you could wave in terms of changing the management or changing me out. That wasn’t going to make a difference.
“I think there is a misunderstanding in the City. There always has been. They see the rising oil price and ask why it is that we aren’t suddenly producing even better results.
“But that’s never been the case. The correlation isn’t there in that way. It simply cannot be.”
The City just couldn’t see it, even though Locke had led Abbot, ergo KCA, through enormous growth – both organic and via acquisition. It is regarded internationally within the global drilling community as a heavy hitter within its peer group and is expected to grow a lot bigger over the next few years.
“For that, we will require more capital and the City clearly wasn’t in the mood to give us more capital, The City is very risk-averse, and it has got worse.
“With the benefit of hindsight, I clearly didn’t know the credit crunch was coming along, but it would not have been easier today than this time last year.
“It’s almost impossible to raise money at the moment … equity capital. And debt capital’s got harder. We could have got money, but the City would have marked the shares down even more, which always makes you vulnerable to a predator at the wrong price in my view … I didn’t see the point of issuing equity at the wrong price.”