Weir Group has tapped into the burgeoning market for oil extraction systems after acquiring SPM Flow Control for $653m (£326m), a deal that has sent the company's shares up by more than 10 per cent.
SPM, which is based in Fort Worth, Texas, manufactures high-pressure well service pumps that are used by oil and gas drilling and extraction companies. The acquisition of the company takes Weir into the high-growth upstream oil market and also beefs up the Scottish firm's North American presence. SPM derives nearly 85 per cent of its revenue in the US and Canada, while Weir is stronger in Europe, Russia, Australia and South Africa.
The acquisition also strengthens Weir's presence in the pump maintenance market, a key factor in reducing its dependence on one-off pump sales. About 45 per cent of SPM's sales come from maintaining equipment abraded by the more aggressive mining process involved in high-pressure pumping.
SPM has achieved high growth rates over recent years due to higher energy prices. It has benefited from increased demand in the oil and gas sectors to improve the efficiency of existing wells to extract more oil. The Texan company achieves margins of around 23 per cent and will enhance Weir's earnings by up to 15 per cent in the first year following the acquisition.
The chief executive of Weir, Mark Selway, said that he expects the price of oil to stay high throughout the decade, meaning markets such as Russia and South Africa will look to non-conventional drilling methods to improve well efficiency.
Mr Selway is refocusing the engineering company on higher margin upstream oil and gas, mining and power markets. Last month, Weir sold its pumps division and its stake in Devonport Dockyard and will use the proceeds of those disposals to fund the acquisition of SPM. Analysts described the buy as an "excellent deal for Weir". Harry Phillips, of Evolution Securities, said: "Mark Selway has not just pulled a rabbit out of the hat, he has annexed all of Watership Down."
Mr Selway said that SPM provides a platform to grow in the upstream oil and gas markets, noting that Weir has a war chest of £350m.
Weir shares gained nearly 11 per cent to 701.5p, giving the company a market valuation of around £1.4bn.
source news : independent.co.uk
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