Glasgow-based engineering firm Weir Group has increased its exposure to shale oil and gas markets after snapping up US services firm Mathena in a deal which could be worth as much as $385 million.
The agreement to acquire the Oklahoma group was hailed as a sign of considerable prospective growth to come, and is reckoned to increase the size of the market accessible by Weir by around half-a-billion dollars.
Mathena manufactures pressure-control products for shale markets, including chokes, separators and fluid separation and containment technology required to satisfy environmental and safety rules.
Weir said the acquisition via an initial payment of $240m, with a further deferred $145m to follow contingent on profit growth was a good strategic fit with its existing businesses, including existing US service firm Weir Seaboard.
It said the deal would help accelerate the growth of the business in the US and throughout the world, allow the company to cross-sell its new expertise to a larger complementary customer base, and release cost and operational synergies of more than $5m per annum by 2015.
Weir chief executive Keith Cochrane, who earlier this week hailed the impact so-called fracking could have on the UK economy and the country’s transition to cleaner fossil fuels, said the deal would give his firm “attractive long-term structural growth prospects.”
“Mathena is a well-regarded business in the US upstream oil and gas markets, with a strong management team and market share in the pressure-control drilling markets,” he said.
“This deal is a close strategic fit with our existing pressure-control business and gives us a larger suite of products which we can sell to the expanded customer base.
“The business has strong growth potential and increases our exposure to shale oil and gas markets, with attractive long-term structural growth prospects.”
The company said the acquisition accelerated its strategy of “creating” a primary provider of pressure-control gear.
It will also be immediately earnings accretive, with post-tax returns expected to exceed the cost of capital finance from existing banking facilities within the first full year. Mathena expects earnings before interest, taxes, depreciation, and amortisation of around $49m this financial year.
Its management team will remain in place and will be incentivised to increase earnings.
Weir also highlighted Mathena’s focus on a “strong customer service culture” and ability to offer bespoke rental and service packages to customers.
“The acquisition will increase the after-market focus of Weir Oil & Gas, with approximately 80% of Mathena’s revenues generated from equipment rental and 20% from related parts and service,” it added.
Mathena president and chief executive John Mathena said that joining Weir would allow his family firm to continue to grow. “Through joining the Weir Group I believe that Mathena can continue to develop as a business committed to innovation and service in one of the world’s most exciting energy markets,” he said.
The deal is subject to US regulatory approvals, but completion is anticipated by the end of the month.
Shares were up 51p at 1,863p.
business@thecourier.co.uk