Published on March 19, 2014
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 firstname.lastname@example.org 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. This Presentation should not be regarded by the Recipient as a substitute for the exercise of its own judgment, and the Recipient is expected to rely on its own due diligence, including separate legal, tax and accounting, if it wishes to proceed further in relation to any transaction concept outlined in this Presentation. The indicative valuations, forecasts, estimates, opinions and projections contained in this Presentation involve elements of subjective judgment and analysis. They are based on facts and data that are often subject to rapid change. Any opinions expressed in this material are subject to change without notice. This Presentation may contain forward-looking statements, included those reported by various Companies. LCC undertakes no obligation to update these forward-looking statements for events or circumstances that occur subsequent to such dates or to update or keep current any of the information contained in this Presentation. Any estimates or projections as to events that occur in the future (including projections of revenue, expense, net income and stock performance) are based upon the best judgment of LCC from the information provided by the Recipient and other publicly available as of the date of this presentation. Any statements, estimates or projections as to LCC’s fees or other pricing are accurate only as at the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained in this Presentation is, or shall be relied upon as, a promise or presentation as to the past or the future. 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LCC may provide services to any member of the same group as the Recipient or any other entity or person (a “Third Party”), engage in any transaction (on its own account or otherwise) with respect to the Recipient or a Third Party, or act in relation to any matter for itself or any Third Party, notwithstanding that such services, transactions or actions may be adverse to the Recipient or any member of its group, and LCC may retain for its own benefit any related remuneration or profit. This Presentation has been prepared solely for informational purposes and is not to be constructed as a solicitation or an offer to buy or sell any securities or related financial instruments. The Recipient should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. The Recipient should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction described in this Presentation. This Presentation does not purport to be all-inclusive or to contain all of the information that the Recipient may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this Presentation. This presentation has been prepared on a confidential basis solely for the use and benefit of the Recipient. Distribution of this presentation to any person other than the Recipient and those persons retained to advice the Recipient, who agree to maintain the confidentiality of this material and be bound by the limitations outlined herein, is not authorized by LCC. LCC specifically prohibits the redistribution or reproduction of this material in whole or in part without the written permission of LCC and LCC accepts no liability whatsoever for the actions of third parties in this respect Lincoln Crowne & Company holds a series of registered trademarks in the United States of America and Australia to protect its intellectual property. Those trademarks are “Lincoln Crowne & Company”: Reg. No. 4,107,955 with the United States Patent & Trademark Office and the following with the Australian Government as certified by the Registrar of Trade Marks : “Lincoln Crowne” (Trade Mark No. 1423960); “Lincoln Crowne & Company” (Trade Mark No. 1423961); “LCC” (Trade Mark No. 142116) and “lincolncrowne” (Trade Mark No. 1424175).
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