Nick Assef Excellence in oil & gas m&a 120314fnl
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Conference Presentation delivered by Nick Assef at Excellence in Oil & Gas Conference in Sydney at the Hilton Hotel on 12th March 2014. ...

Conference Presentation delivered by Nick Assef at Excellence in Oil & Gas Conference in Sydney at the Hilton Hotel on 12th March 2014.

Presentation covers a number of Macro Strategy issues pertaining to M & A activity at present - including referring to both deals and valuations

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Nick Assef Excellence in oil & gas m&a 120314fnl Nick Assef Excellence in oil & gas m&a 120314fnl Presentation Transcript

  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Page | 1 Oil & Gas Services M & A Prepared for 9th Annual Excellence In Oil & Gas Conference, 12th March 2014 Resourceful Events Nicholas A. Assef LLB (Hons), LLM, MBA
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Workbook Contents Page | 2 1.  Macro Sector & Regional Drivers - Upstream 2.  Deal Environment & Drivers 3.  Valuation Arbitrage? Cross Border Observations 4.  Strategic Due Diligence: Current Deal Challenges 5.  Northern Hemisphere Deals: Samples of Specialists 6.  Opportunities & Trends LCC is a specialist M & A Firm that is skilled at leading Directors and Senior Management through the complex Strategic, Financial, Governance & Project Management requirements of Public Transactions Since 2011 LCC has advised on c. A$500m in closed M & A transactions, c. A$300m in associated deal financings and is currently advising on a range of complex M & A and advisory transactions – including the renegotiation of a multi decade royalty arrangement with Life of Royalty value c. A$1.5b LCC’s weekly market research updates include M & A activity in the Engineering & Contracting sector in Australia
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Macro Sector & Regional Drivers - Upstream Page | 3 Macro Picture Looks Attractive, But Many Challenges……….. 0 5000 10000 15000 20000 25000 30000 Australian Energy Exports LNG Crude Oil Announced   9%   Feasibility   21%   Commi7ed   66%   Completed   4%   LNG, Gas, Oil Major Project Pipeline $294 Billion in “Notional” Projects ü  Multiple Gas precincts c. Australia ×  Capital deployment priority – cheaper taxing nations ? ü  South East Asia demand – effects Fukushima ? ×  US an advanced cheap producer of Oil & Gas (gas glut ?) ü  Government desire royalties / cashflows ×  Australian track record hitting timetable / budget ? Source : BREE, LCC Calculations Gas Exports Trending Up
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company Company Ticker Market  Cap  ($A) TEV  /  EBITDA  (A) Deal  Count^ SeaDrill NYSE  :  SDRL 18,381$                                   12.80x 10 Jacobs  Engineering NYSE  :  JEC 9,194$                                       11.00x 15 Acquisition  in  2013  of  SKM  Consulting  for  A$1,300m Quanta  Services NYSE  :  PWR 7,690$                                       9.20x 6 Acquisition  of  NACAP  for  A$100m Chicago  Bridge  &  Iron NYSE  :  CBI 8,940$                                       11.00x 4 Included  US$4.9bln  merger  with  Shaw  Group  in  2012 McDermott  International NYSE  :  MDR 2,146$                                       9.00x 2 Last  -­‐  DEEPSEA  Group  offshore  Oil  &  Gas  Service Emcor  Group NYSE  :  EME 3,400$                                       10.50x 6 Acquisition  of  USM  from  TSE  for  $225m  in  June  2011 10.58xUnweighted  Mean Specialist  Offshore  Driller.    US$1,06m  merger  with  Scorpion  Offshore  in  2010 12 March 2014 ExcellenceInOil&GasConferencePresentation Deal Environment & Drivers Page | 4 Cross Border / Foreign Direct Investment •  Capitalise on market imperfections & expanding market opportunities •  Follow local Upstream client cross border •  Seek higher margin markets •  Enter / expand on sustainable Projects •  Deal with Regulatory & Union issues efficiently ü  Valuation Arbitrage ü  Abundance of Capital in North America ü  Overall Deal Momentum Lifting Domestic M & A Rationale •  Geographic balancing (West & East Coast) •  Institutional Investor sentiment (O & G exposure ?) •  Seek higher margin sub markets (not commoditised) •  Diversify Revenue & Client Base •  Liquidity Events For Smaller Players •  Valuation arbitrage ×  Limited Debt Financing for M & A ×  Bidder Valuations Depressed vs Northern Hemisphere ×  “Opportunism” vs Strategic Valuations Prevail ×  Strong Balance Sheet The Priority ×  PE rotated away from sector – for moment Mining Boom Over ? Large Diversified Engineering & Contractors – Value in A$m ^ Deal Count since 1 January 2010 Source : Company Data, LCC Research Just Corporate : Also high interest from Offshore PE / Pension Funds M & A back in vogue : In Australia many “Toehold” deals Distressed Deals
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Valuation Arbitrage? Cross Border Observations Page | 5 North American Public Company Sample Australian Public Company Sample Company Ticker Market  Cap  ($A) TEV  /  EBITDA  (A) Southern  Cross  Electrical ASX  :  SXE 130 3.10x Specialist  Electrical  Player.    Valuation  multiple  skewed  because  c$30m  Cash  (Low  Debt) WDS   ASX  :  WDS 164$                                             3.90x Valuation  multiple  skewed  because  c.  $45m    Cash  (No  Debt).    LCC  assumes  circa  A$32m  EBITDA  FY14 AJ  Lucas ASX  :  AJL 260$                                             -­‐ Exploration  &  Production  Drilling,  Pipeline.      division  focussed  CSG Decmil  Group ASX  :  DCG 362$                                             4.20x Acquired  Eastcoast  Development  Engineering  for  A$30.12m  in  Feb  2013 Tox  Free  Solutions ASX  :  TOX 446$                                             7.30x Upstream  &  downstream  Oil  &  Gas  waste  &  industrial  services Mermaid  Marine ASX  :  MRM 554$                                             5.50x Marine  Logistics.  Itchtys  Gas  project  2  Platform  Supply  Vessel  deal  @  $145m  contract Skilled  Group ASX  :  SKE 740$                                             10.20x Historically  Labour  Hire,  but  acquired  Broadsword  Marine  Contracting  in  Darwin  for  A$72m  in  June  2013 Monadelphous ASX  :  MND 1,615$                                     6.10x Recently  won  large  Gas  FM  project  -­‐  A$150m  @  Woodside's  Karratha  Gas  Plant WorleyParsons ASX  :  WOR 4,082$                                     9.70x Strong  Off  shore  &  Onshore  presence  in  Hydrocarbons  Division Unweighted  Mean 5.86x Company Ticker Market  Cap  ($A) TEV  /  EBITDA  (A) Deal  Count^ SeaDrill NYSE  :  SDRL 18,381$                                   12.80x 10 Jacobs  Engineering NYSE  :  JEC 9,194$                                       11.00x 15 Acquisition  in  2013  of  SKM  Consulting  for  A$1,300m Quanta  Services NYSE  :  PWR 7,690$                                       9.20x 6 Acquisition  of  NACAP  for  A$100m Chicago  Bridge  &  Iron NYSE  :  CBI 8,940$                                       11.00x 4 Included  US$4.9bln  merger  with  Shaw  Group  in  2012 McDermott  International NYSE  :  MDR 2,146$                                       9.00x 2 Last  -­‐  DEEPSEA  Group  offshore  Oil  &  Gas  Service Emcor  Group NYSE  :  EME 3,400$                                       10.50x 6 Acquisition  of  USM  from  TSE  for  $225m  in  June  2011 10.58xUnweighted  Mean Specialist  Offshore  Driller.    US$1,06m  merger  with  Scorpion  Offshore  in  2010 Source : Company Data : LCC Research
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation EMCOR Group Inc. (NYSE : EME) Page | 6 Source : Company data, LCC Calculations, CapitalIQ, Bloomberg Consistent M & A activity since 2010, including acquisition USM from TSE for c. $230m
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Jacobs Engineering Group Inc. (NYSE : JEC) Page | 7 11 of 15 deals executed when TEV / EBITDA Multiple Higher than 8.0x (A) TEV/EBITDAx(A) Rapid Fire Deal Window 7 Deals in c. 8 Months “Deal Momentum” Source : Company data, LCC Calculations, CapitalIQ, Bloomberg
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Strategic Due Diligence: Current Deal Challenges Page | 8 Each Deal Is Different : On High Alert For Areas That Can Cause Margin Collapse Client Lists Recent CAPEX Spend Contract Waterfall Technology vs Plain Vanilla Union & Personnel Issues Health & Safety Issues Variations & Claims Outstanding •  Spread of Clients •  Project Lifecycle •  Client Pedigree •  CAPEX Starved ? •  CAPEX Bubbles •  Current Competitiveness of Kit – Technology Shift •  Term of Contracts •  Style of Contract -  Fixed -  Open Book -  Cost Reimburse •  How Technical Work ? •  Competitors for Work ? •  Cost of Technology ? •  How Easy To Replace Contractor on Site ? 1 2 3 45 6 7 •  Delays in Payment •  % of Actual Claim or Variation •  Track record of Sponsor in Resolving •  Who the Sponsor is •  Safety Standards •  Effect On Insurances •  Harmonisation of Work Standards •  Union Presence On Site •  Key Personnel - Roles •  Relationships With Client •  Employee Benefits -  Accommodations •  Schedules where FIFO 1 2 3 4 5 6 7
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation International Deals : Samples of Specialists Page | 9 Natural Gas Partners LLC www.msenergyservices.com 6.86x ** Onshore gas field Horizontal Directional Driller (USA) Alta Disposal www.altadisposal.com 7.00x ** Oilfield Waste Disposal – including Fracing Water (Canada) Intertek Group PLC www.int-inspec.com 6.17x Onshore & Offshore Non Destructive Testing & Inspection Services (Norway) EQT Partners AB www.akersolutions.com 6.9x Well intervention services including well casing, testing, metering & wireline services (Norway) ** Minority Interest Deals Business Growth Fund PLC www.spex-innovation.com 6.14x Offshore recovery, severing & explosives operator (Scotland) HitecVision AS www.reefsubsea.com 7.81x Offshore Construction, trenching & cabling Fleet Operator (Norway) OnshoreTransactionsOffshoreTransactions CSG, Shale & LNG Driven DemandACQUIRER TEV / EBITDA
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Opportunities & Trends Page | 10 Deal Activity Will Continue – In Particular Cross Border Deal Activity In Marine & Unconventional Gas Planets are aligned for ongoing Cross Border activity ü  Weak AUD compared to 12 months ago ü  Ongoing strong Onshore & Offshore Project Pipeline ü  Unconventionals (CSG, Shale Oil) ü  High International Valuations ü  M & AActivity Warming Up In Northern Hemisphere ü  High Access To Capital In Northern Hemisphere ü  Good Pipeline of Potential Projects ü  Weak Domestic Valuations ü  Difficulty in Deal Financing (Debt and Equity) ü  Reasonable “Public” Domestic Balance Sheets (Targets ?) ü  Deal “Challenges” May Go To Value/Structure or Kill Deals Baytex Energy acquires Aurora Oil & Gas for A2,316m. Assets include Eagle Ford Shale Belt in South Texas (Both complex service delivery areas)
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company PHILANTHROPY lincolncrownefoundation.org The Lincoln Crowne Foundation is an extension of the Firm’s corporate social responsibility arm that director, Nicholas Assef initiated.The foundation’s main purpose is to support and extend partnership development to grass roots charities. GOVERNANCE unglobalcompact.org We are governed by our commitment as a signatory to the UN Global Compact. The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies to ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. ACADEMIA bond.edu.au LCC and Bond University has established a relationship around the importance of success, academic integrity and outstanding performance. To this end, LCC has sponsored various faculty awards in both the Business and Law Schools. SPORT lincolncrownesailing.com.au LCC has sponsored 12 and 16ft skiffs in Sydney, over numerous sailing seasons and championships. In partnership with Variety the Children’s Charity, Nicholas Assef proudly supported the Variety Port Jackson 12ft Skiff Championships. This event marked the launch of a series of projects committed to raising support for Alopecia Areata, which is a medical condition of which there is no known cure. 12 March 2014 ExcellenceInOil&GasConferencePresentation Page | 11 LCC’s Community Focus
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company ExcellenceInOil&GasConferencePresentation 12 March 2014 Contact us Page | 12 AUSTRALIAN OFFICE Suite 1, Level 30 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Australia Correspondence GPO Box 4154 Sydney NSW 2001 T: +612 9262 2121 F: +612 8088 1239 PRESENTER Nicholas Assef naa@lcc.asia T: +612 8288 8688 HONG KONG REP OFFICE 20/F One International Finance Centre 1 Harbour View Street Central Hong Kong HONG KONG T: +852 3960 6532 F: +852 3669 8008 AFSL 278054 ACN 105 807 645 www.lcc.asia
  • WORKBOOK WWW.LCC.ASIA | © Lincoln Crowne & Company12 March 2014 ExcellenceInOil&GasConferencePresentation Page | 13 Important Information This presentation (‘Presentation’) has been drafted by Lincoln Crowne & Company Pty Limited and/or its affiliates (together, “LCC”) for the exclusive use of the party to whom LCC delivers this presentation (the “Recipient”) using information provided from a variety of sources, including publicly available information and potentially information from the Recipient. You acknowledge and agree LCC has not independently verified the information contained in this Presentation, nor does LCC make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this Presentation. 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