Weir eyes further deals after buying Seaboard for £431m

SCOTTISH engineering company Weir Group has boosted its presence in the controversial shale oil and gas industry in North America after buying US manufacturer Seaboard Holdings for $675 million (£431m).

Chief executive Keith Cochrane unveiled the mammoth deal yesterday and hinted at more acquisitions to come as the FTSE 100 company prepares to take a slice of a fast-growing but highly-contentious market.

The company said it expected an immediate benefit to earnings growth from Houston-based Seaboard.

Hide Ad
Hide Ad

Extracting gas from shale and sands, through a process known as “fracking”, has experienced huge growth in North America in recent years, benefiting firms such as Glasgow-based Weir and Seaboard.

Green campaigners say the process causes environmental damage and the French government has banned it.

Weir sees it as an enormous opportunity and argues that the acquisition of Seaboard will build up a new revenue stream. It is paying for the deal from new and existing bank facilities.

The markets were generally positive on the deal, though analysts thought Weir had paid top price and the shares were marked 1.3 per cent or 22p lower to close at 1,719p, valuing the group at £3.6 billion.

Weir’s heavy-duty pumps are used to force sand and chemicals into the ground to push out hydrocarbons, while Seaboard’s equipment is used to control pressure in the wells. The deal is subject to US regulatory clearance.

Cochrane said: “Seaboard is a well-managed business, with a strong position in a market that we understand well. The acquisition is perfectly in line with strategy.”

He added: “It broadens our product offering and fits into our business model of growing the installed base of original equipment from which we drive after-market opportunities.

“There is great potential to strengthen the business further through our lean engineering and operational processes and extensive sales and service networks. We are confident that the extended market opportunities and medium-term operational benefits will create significant value for our shareholders.

Hide Ad
Hide Ad

“We retain financial flexibility to pursue organic growth initiatives and further acquisition opportunities in line with our strategy.”

For the year to 31 December, Seaboard is forecast to achieve proforma Ebitda – or underlying earnings – of $58m on revenue of $216m.

Harry Phillips at Evolution Securities described it as “a good looking deal with plenty of cross selling opportunities.” He said: “The price is a fullish one in the short term, but the medium and long-term strategic opportunities are compelling.”

Seaboard’s senior management team, led by president and chief executive Kelly Joy, will continue to manage the business and will report to Steve Noon, divisional managing director, Weir Oil & Gas.

Joy said: “In recent months, we have been looking for the ideal partner to take the business forward while retaining Seaboard’s identity and commitment to customer service. I am convinced that this is the best outcome for our employees, customers and shareholders.

“The senior team at Seaboard intends to remain with the business and we are all excited by the extensive opportunities arising from the combination with Weir.”