January 30, 2014 at 12:14 pm #11595
Business analysis: Foster Wheeler sale: Amec’s $3.2bn purchase looks like a sensible move at a reasonable price , says Nils Pratley
Investors have learned to be wary when chief executives describe a deal as “transformational”. Too often, the phrase indicates that the acquirer is suddenly bewitched by the attraction of sheer size, or, more dangerously, is getting into a field it doesn’t understand properly. In the case of engineer and project manager Amec’s proposed $3.2bn (£1.9bn) purchase of Foster Wheeler, there are three reasons to be more optimistic than that. First, Amec chief executive Samir Brikho is a boss who has bought well in the past. True, this deal would be the largest by far, but a “biggie” has been signalled for a while. Interest in Foster Wheeler, which in effect put itself up for sale last year, has been long debated. Second, the price – though no bargain – looks OK. Amec would pay about 9.5 times Foster Wheeler’s expected top-line earnings (before interest, tax and depreciation) for 2014. Thus it was able to predict “double-digit” enhancement to earnings in the first year of ownership; if achieved, that would be a good start.
Third, Amec, by paying 50% in shares, is financing the deal reasonably conservatively.
The main worry is that Amec is travelling too far from its concentration on the “upstream” part of the oil, gas and mining industry. On the engineering and construction side, Foster Wheeler lives further down the industrial chain in the world of refining, liquefied natural gas, chemicals and petrochemicals. It also has a power equipment division, supplying technology to allow generators to switch between fuel sources. The latter is clearly a step away from Amec’s traditional world. The former, though, seems a natural route for expansion.
There are no risk-free $3.2bn acquisitions, but this one looks sensible, as the 2.5% rise in Amec’s shares suggested.
January 14, 2014
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