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Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
What’s the worst acquisition in historical past? On the high finish of the dimensions, there isn’t a scarcity of contenders, together with AOL’s merger with Time Warner in 2000, and Royal Financial institution of Scotland’s £49bn takeover of ABN Amro in 2007.
However some smaller offers additionally deserve a spot in company historical past books as cautionary tales of what can go mistaken when an organization tries to dramatically remodel itself. Wooden Group’s £2.2bn acquisition of rival Amec Foster Wheeler in 2017, for instance.
Wooden is an Aberdeen-headquartered firm that constructed its fame delivering engineering contracts for oil and fuel majors. In its heyday, it commanded a market capitalisation exceeding £5.3bn.
As we speak, Wooden has a paltry market worth of simply £167mn and is labouring below a web debt burden anticipated to common about $1.1bn this yr. It’s shedding money and faces the expiry in October subsequent yr of some $1.4bn of debt services. This week, Wood embarrassingly lost its chief financial officer after he admitted to misstating his skilled {qualifications}.
A lot of Wooden’s woes have their roots within the 2017 deal. On the time, the power companies business was struggling to get better from the 2014 oil shock. Wooden — then reliant on oil and fuel for about 85 per cent of its income — spied a chance to scoop up a extra diversified competitor. Amec had different strings to its bow, reminiscent of engaged on environmental and infrastructure tasks.
Historically Wooden had favoured smaller, bolt-on offers. It ought to most likely have caught to its knitting. Amec saddled it with considerably larger web debt — which jumped from $323mn on the finish of its 2016 fiscal yr to $1.6bn in 2017 — and legal liabilities.
There have been subsequent issues, after all. Companies corporations supplied prospects contracts at pre-determined charges, which got here unstuck with rising inflation. Wooden determined in 2022 to shift away from these, to agreements the place extra prices could be recovered. However this has clipped income and left liabilities linked to exiting outdated contracts. An unbiased overview initiated final yr into Wooden’s tasks enterprise has to date unearthed “materials” weaknesses within the firm’s monetary and governance tradition.
In addition to disastrous M&A, there’s the painful lack of it. Two potential suitors have declined to amass Wooden lately. The best of those affords was from Apollo in Could 2023, which valued Wooden at greater than £2.2bn together with debt. After a lot 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 anybody’s ideas. Wooden’s greatest probability of redemption could be to attempt to entice one other bidder — even when it could now be at a knockdown worth.
