Weir Group's chief executive says time is right for acquisitions

Published on Saturday 28 November 2009 12:22

THE new chief executive of engineering giant Weir Group, Keith Cochrane, is willing to take on £100 million-plus of acquisitions to build its power generation and oil and gas businesses.

Glasgow-based Weir has focused on deal-making to move from its origins in the Clyde shipping industry towards higher-growth energy and mining markets. However, despite having the firepower, Weir has completed no major purchases since buying Houston-based SPM Flow Control for 328m in mid-2007.

Cochrane, who took over from Australian Mark Selway at the start of the month, said while the group had banking facilities in place which would have allowed it to do deals, the uncertainty of the financial crisis made acquisitions less attractive.

"Nobody quite knew where the bottom was," Cochrane told Scotland on Sunday.

Fewer deals have been available at reasonable prices, with sellers unwilling to lower expectations raised by the commodity boom.

Now, however, companies are examining operations and identifying non-core business in a bid to free up cash for reinvestment elsewhere, said Cochrane.

"There's certainly a lot more books arriving on the desks of our business development guys," he said.

After refinancing prior to the recession, Weir has large, undrawn debt facilities, giving it firepower of up to 350m if needed. The group's net debt is approximately equal to its earnings before interest, tax, depreciation and amortisation, but Cochrane would be comfortable if the ratio increased.

A former chief executive at transport group Stagecoach, Cochrane said it was possible Weir would not complete any deals if they were not sufficiently attractive, but he was prepared to look at businesses worth more than 100m.

Large acquisitions in the mining services business are less likely than "bolt-on" deals.

Larger targets are more likely to be pursued in either the oil and gas sector or power generation, with emphasis appearing to be on the former.

Currently Weir's oil and gas business is heavily exposed to North American gas drilling, a sector which has suffered from a sharp fall in prices during the recession.

Cochrane said the group may seek deals which gave it diversity away from the US and more exposure to crude oil.