Fork in the road for Wood Group amid Gulf interest
◆ Should the totemic firm stay public or throw its lot in with private capital, wonders Jeremy Grant
Here we go again. Last week, Wood Group rejected a takeover offer from Sidara, a private engineering and consulting group with roots in the Middle East. The offer for the London-listed company, founded in 1982 by Sir Ian Wood, came a year after it rejected four successive offers from Apollo Global, a US private equity firm.
The Aberdeen-based company is emblematic of Scotland’s heft in the oil and gas secto. It provides the services and technology needed to oil the cogs of the energy business such as pipeline maintenance and equipment overhaul.
Yet Wood has been navigating choppy waters. Two years into a three-year restructuring it has made progress transitioning from oil and gas clients to those in renewables (hydrogen, wind, and carbon capture). But its shares had fallen by about a third since the collapse of the Apollo approach and before the Sidara offer.
The challenge lies not in the health of its business (pre-tax earnings and margins were up in the first quarter) nor in whether its transition makes sense (it does, because tackling climate change is urgent). It lies instead in the difficulty a publicly listed company has persuading myriad shareholders to keep the faith with a process that has no precedent.
That process involves riding two horses at once. As Barclays analysts put it: “The energy narrative … no longer is renewables instead of fossil fuels in transition, rather it is improved fossil fuel utilisation complementing renewables adoption.”
The public markets are a schizophrenic lot, impatient for jam today even as they may feel inclined to reward a compelling renewables transition story at some point.
Executives in a recent annual survey by consultants Bain revealed that they think it’s getting harder to generate adequate return on investment on energy transition-oriented projects. Yet it’s a transition that holds out genuine promise. Recent deals in Scotland point to why Sidara – founded in 1965 in Beirut by four engineering professors and now a sprawling operation in 60 countries – might be interested in Wood.
Scotland is home to many companies that made their name in oil and gas servicing but which are pivoting towards renewables because they know there’s no long-term future in hydrocarbons and future cashflow lies in net zero.
That’s attracted the attention of buyers. “There is significant interest globally in businesses that have developed deep technical skills in offshore engineering and construction as a result of servicing the oil and gas industry for years and which are now channelling these skills into new energy technologies,” says Jon Shelley, head of deals at PWC Scotland. Last year, Japan’s Mitsui bought STATS, a 26-year-old Aberdeen pipeline repair company that’s now working on hydrogen pipelines.
The question is whether Wood is better off riding both horses as a publicly-listed company, constantly under the glare of shareholders to perform, or whether its ability to win more renewables work and make the transition is more likely to come good under the ownership of private – and patient – capital.