WOOD Group is on the verge
of completing its biggest-ever acquisition. Within two weeks it hopes to finalise an agreement to buy the Texas oil rig design company Mustang Engineering for $137.5m (#92m).
The deal will give Wood Group the capacity to design the top-sides for new rigs operating in big deep-water fields, such as those in the Gulf of Mexico and West Africa,
Its current engineering design operations in Scotland are mainly geared towards the modification of older rigs operating in the relatively shallow waters of the North Sea.
The acquisition of Mustang will also bolster Wood Group's strong presence in North America. Deputy director Alistair Langlands said that following completion of the deal nearly half of the Scottish engineering group's business would come from the US and Canada.
Wood Group went public on its negotiations with Mustang yesterday after word of the talks leaked out in US newspapers over the weekend. But Langlands said there were no substantive issues left to resolve.
''We are all very comfortable that this will move to a signed agreement,'' he said. ''There are just a few legal loose ends to be tied up and we are hopeful that this will be done over the next 10 to 12 days.''
The acquisition will be completed in two stages. Wood Group will initially pay Mustang's three co-founders $110m (#75m) for an 80% stake in the company. Langlands said most of this consideration would be paid in cash, but about 20% would consist of Wood Group shares.
The remaining 20% of the equity would be acquired, probably for cash, over the next six years.
Langlands said Wood Group, which has net debt of around #80m, would finance the deal from existing borrowing facilities with a group of six UK clearing banks.
Mustang employs 1200 people, mainly in Houston, Texas, and made an operating profit of $13m (#8.5m) last year on sales of $120m (#80m).
But Wood Group is much bigger. It employs 6000 worldwide and made a pre-tax profit of #33.6m on turnover of #601m.
Mustang was founded in 1987 by its three top executives who own all of the equity. But they decided last year that it needed
to become part of a larger international group in order to grow further so they put the company up for sale in October.
Langlands said Wood Group had beaten off competitors who had offered more money for Mustang because the two companies were a good cultural fit, with similar styles of management.
Mustang president Paul Redmon will continue to head up the business under Wood Group ownership, and Bill Higgs will stay on as vice-president for sales and marketing. But chief financial officer Felix Covington, Mustang's third co-founder, will retire.
Wood Group chairman Sir Ian Wood, who was in Houston yesterday, said in a statement: ''Mustang is one of the world's leading engineering design companies for offshore platform topsides and has a particularly strong deep-water engineering capability. There are significant synergies with Wood Group's own engineering businesses world-wide.''
Langlands also highlighted the deep-water engineering capacity that Wood Group would acquire with the deal. ''Mustang provides quite a strong focus on the deep- water market which is really where a lot of money is going to be spent by the oil and gas business over the next five years,'' he said.
Langlands said the acquisition would not push the Aberdeen-based Wood Group, which is 73% owned by Sir Ian's family, any closer to a flotation.
But he hinted that the company might raise cash on the stock market to finance an even bigger deal in the future. ''The group is always very open to look at a flotation when it is the right thing to do,'' Langlands said.
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