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What’s the worst acquisition in history? At the highest end of the size, there is no such thing as a shortage of contenders, including AOL’s merger with Time Warner in 2000, and Royal Bank of Scotland’s £49bn takeover of ABN Amro in 2007.
But some smaller deals also deserve a spot in corporate history books as cautionary tales of what can go unsuitable when an organization tries to dramatically transform itself. Wood Group’s £2.2bn acquisition of rival Amec Foster Wheeler in 2017, for instance.
Wood is an Aberdeen-headquartered company that built its fame delivering engineering contracts for oil and gas majors. In its heyday, it commanded a market capitalisation exceeding £5.3bn.
Today, Wood has a paltry market value of just £167mn and is labouring under a net debt burden expected to average about $1.1bn this yr. It’s losing money and faces the expiry in October next yr of some $1.4bn of debt facilities. This week, Wood embarrassingly lost its chief financial officer after he admitted to misstating his skilled qualifications.
A lot of Wood’s woes have their roots within the 2017 deal. On the time, the energy services industry was struggling to get well from the 2014 oil shock. Wood — then reliant on oil and gas for about 85 per cent of its revenue — spied a chance to scoop up a more diversified competitor. Amec had other strings to its bow, similar to working on environmental and infrastructure projects.
Traditionally Wood had favoured smaller, bolt-on deals. It should probably have stuck to its knitting. Amec saddled it with significantly higher net debt — which jumped from $323mn at the tip of its 2016 fiscal yr to $1.6bn in 2017 — and legal liabilities.
There have been subsequent problems, after all. Services firms offered customers contracts at pre-determined rates, which got here unstuck with rising inflation. Wood decided in 2022 to shift away from these, to agreements where additional costs might be recovered. But this has clipped revenue and left liabilities linked to exiting old contracts. An independent review initiated last yr into Wood’s projects business has up to now unearthed “material” weaknesses in the corporate’s financial and governance culture.
In addition to disastrous M&A, there’s the painful lack of it. Two potential suitors have declined to accumulate Wood in recent times. The best of those offers was from Apollo in May 2023, which valued Wood at greater than £2.2bn including debt. After much to-ing and fro-ing, the US buyout group walked.
Eight years on from what was meant to be the transformative takeover of Amec, diversification is now removed from anyone’s thoughts. Wood’s best likelihood of redemption could be to try to draw one other bidder — even when it might now be at a knockdown price.
nathalie.thomas@ft.com
