The company

Wood Group, the Aberdeen-headquartered FTSE 250-listed energy services business, said last month that it was “minded to reject” a fourth cash offer (of $2bn) from Apollo Group. The offers from the US private equity giant have seen Wood Group’s share price rise almost 50% in six weeks – which has been useful with the activist investors circling, most notably Sparta Capital.

Back in January, Sparta claimed shares in the Scottish company – which offers consultation, management of assets and engineering services for the energy and materials sector, and recently expanded into clean energy projects – were “significantly undervalued”.

Apollo’s activities seem to have helped that situation for Wood Group, at a time when many UK-listed companies look susceptible to overseas bids. Wood Group employs around 35,000 professionals in more than 60 countries and has global revenue of around $5.5bn.

As we go to press, Apollo must decide whether to turn its offer into a ‘firm intention’ (by 19 April) or head back over the Atlantic. Wood Group, meanwhile, says its “board will continue to engage with its shareholders and intends to engage further, on a limited basis, with Apollo”.

The acquisition

Wood completed the £2.2bn acquisition of its London-based rival Amec Forster Wheeler in October 2017. However, it was not well received and the share price flatlined before drifting and then plummeting to 151p as the world entered lockdown in March 2020.

Profitability suffered, as seemingly did reputation, as Wood Group inherited some problems. In 2021, Amec Foster Wheeler paid a £103m penalty after entering into an ‘agreement’ with the UK’s Serious Fraud Office to settle historic corruption allegations, which predated Wood Group’s ownership. It related to 10 alleged corruption offences in Nigeria, Saudi Arabia, Malaysia, India and Brazil spanning a period between 1996 and 2014, relating to the use of corrupt agents in the oil and gas sector.

If Wood Group gets the opportunity to embark on an M&A spree, it will no doubt want to avoid any more such problems in its choice of targets.

The sale

Last September, Wood Group completed the sale of its built environment consulting business to WSP Global for $1.8bn. The gross sales proceeds, which represented a healthy EV-EBITDA multiple of 16x, were used to pay down its net debt position.

Wood Group CEO, Ken Gilmartin, said: “This transaction marks a new chapter for Wood. The proceeds have transformed our balance sheet and restored financial flexibility to the group.”

It was indeed the start of a new era of sorts because that is when the activist investors’ interests were piqued. With no debt, there was scope for returning cash to shareholders. And with profitability rapidly improving last year– in the main part because of recommissioning work for the oil and gas industry – the business had indeed begun to look seriously undervalued.

The team

Ken Gilmartin took over as CEO of Wood in June 2022. He originally joined Wood as chief operating officer, after 15 years with US-headquartered energy consultancy Jacobs. ‘Energy security’ and ‘sustainability’ were the key messages from him, when describing where the business would see growth.

Erik Larson then joined from Jacobs, as president of corporate development and strategy. Based in Virginia, he will no doubt be driving an acquisitive strategy, which seems ambitiously focused on the US. Divestments are likely to be on Wood’s agenda, too.