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What is the worst acquisition in history? At the top end of the scale, there is no 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 place in corporate history books as cautionary tales of what can go wrong when a company tries to dramatically transform itself. Wood Group’s £2.2bn acquisition of rival Amec Foster Wheeler in 2017, for example.
Wood is an Aberdeen-headquartered company that built its reputation 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 year. It is losing cash and faces the expiry in October next year of some $1.4bn of debt facilities. This week, Wood embarrassingly lost its chief financial officer after he admitted to misstating his professional qualifications.
Many of Wood’s woes have their roots in the 2017 deal. At the time, the energy services industry was struggling to recover from the 2014 oil shock. Wood — then reliant on oil and gas for about 85 per cent of its revenue — spied an opportunity to scoop up a more diversified competitor. Amec had other strings to its bow, such as 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 end of its 2016 fiscal year to $1.6bn in 2017 — and legal liabilities.
There have been subsequent problems, of course. Services companies offered customers contracts at pre-determined rates, which came unstuck with rising inflation. Wood decided in 2022 to shift away from these, to agreements where additional costs can be recovered. But this has clipped revenue and left liabilities linked to exiting old contracts. An independent review initiated last year into Wood’s projects business has so far unearthed “material” weaknesses in the company’s financial and governance culture.
As well as disastrous M&A, there’s the painful lack of it. Two potential suitors have declined to acquire Wood in recent years. The highest of these offers was from Apollo in May 2023, which valued Wood at more 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 far from anyone’s thoughts. Wood’s best chance of redemption would be to try to attract another bidder — even if it would now be at a knockdown price.
nathalie.thomas@ft.com
