ISSUE 2 / 2018
THE PUBLICATION FOR THE INDUSTRIAL PROJECT SUPPLY CHAIN INDUSTRY
ISSUE 2 / 2018
TIP THE SCALES McDermott, CB&I Join Forces
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TECHNIPFMC ............................................................................................. page 58 JACOBS ENGINEERING .............................................................. page 58 CH2M ..................................................................................................................... page 58
EPCs
Tip The Scales McDermott, CB&I Join Forces BY LORI MUSSER
T
he greater scale mantra is resonating with engineering, procurement and construction companies, or EPCs, around the world. As projects become more complex and contract values approach the point of colossal, scale is becoming an EPC prerequisite. It can offer a depth of resources and facilitate best solutions for the biggest of projects. Buying into the need to upscale, CB&I and McDermott International are the latest to initiate a merger. David Dickson, president and CEO of McDermott, said the two companies are a natural fit. “Customers worldwide increasingly seek a single company that can offer end-to-end solutions.” This transaction, he said, combines highly complementary businesses to create a leading engineering, procure58 BREAKBULK MAGAZINE www.breakbulk.com
The newly integrated company will be better suited to design and construct some of the largest and most technologically advanced facilities in the world from start to finish.” Bill Hanson heads up U.S. business development for Illinois-based Great Lakes Dredge & Dock, a company that has supplied services to both CB&I and McDermott in the past. He believed that the merger trend has a lot to do with the ups and McDermott’s Littoral downs in global markets. project in the Bay of Campeche, Mexico. “Being publicly traded, shareholders want consistent CREDIT: MCDERMOTT value and growth, and sometimes the way to growth is through mergers and acquiment, construction and installation sitions.” He added that mergers can flatten out the low spots, providing company, responding to evolving extra value for shareholders. customer needs. The scale, and diversification across onshore and offshore, Stuart Spence, McDermott’s chief financial officer, said the new company upstream and downstream, and in power markets, will help the new will have a strong capital structure, company capitalize on global growth “with combined expected revenues of approximately US$10 billion,” allowing it opportunities, Dickson said. CB&I typically tackles onshore to invest more in growth, and leverage its pursuits, while McDermott has a fixed-cost base across a bigger business. He added that enhanced scale will strong offshore business. McDermott is an established presence in the help mitigate risks, at a time when the Middle East and Asia, while CB&I has competitive landscape is in transition. “Most of the [largest] companies broad operations in the U.S. … have become more fully integrated, motivated by many of the same factors SMOOTHING OUT driving our combination,” Spence said. CYCLICALITY Other companies that have recently In an opinion issued by Bloomberg on Dec. 19, the day after the proposed chosen to further integrate their EPC services include Paris-based Technip merger was announced, analysts said and Houston-based FMC Technolothe catalyst for McDermott’s CB&I bid was clearly price. CB&I had a large gies, now TechnipFMC; as well as Dallas-based Jacobs Engineering with write-down last year, stock prices slid, Denver-based CH2M. and the company declared that it was planning to sell its “crown jewel” techLarger, more vertically integrated companies may have greater appeal for nology platform. Bloomberg said at the energy production companies. time that by selling the whole company instead, “CB&I shareholders will get Speaking to Breakbulk, C.A. Shields, at Bay Area Houston’s Economic Parthigher-valued McDermott paper and nership, said: “The merger of these two keep a stake in that important technology business, with a chance to benefit powerhouses is part of the ongoing M&A trend.” He said larger companies from a cyclical recovery in general.” are more competitive in this era of new GOOD FOR THE REGION methods and technologies. “Separately, the two companies have long been Roger Guenther, executive director respected for their specialized engiof the Port of Houston Authority, said the port has been monitoring the EPC neering and construction expertise. ISSUE 2 / 2018
consolidation trend, especially within the energy sector. He said, insofar as a merger helps maintain efficiencies in organizations, it is a positive sign. “There are billions of dollars of investment in our region and in some of the shale plays. The price of oil is going back up,” he said. That spells opportunity for EPCs and for the Houston area. Guenther added that oil and gas developments bring project cargo to the port, drilling brings pipe and other cargo to the port, and increased production capacity brings export product to the port. Any industry efficiencies predicated by mergers are a win-win for the port community. Having more of the world’s largest energy EPCs in the backyard of the largest breakbulk port in the country may be telegraphing greater prosperity for the energy sector. “We see a very bright future,” Guenther said. Shields pointed out that M&As can trigger untoward impacts, such as layoffs. However, he believed that any adverse effect for Houston appeared to be minimal, with many of those indemand employees finding work back with the newly minted company or at a competitor. “Houston is set to benefit from this union, not just because we are the nexus of upstream, midstream, down-
stream, and global distribution, but the new technologies that will result from this marriage will continue to grow and diversify the region’s booming economy,” he added. Competitors are quietly watching McDermott-CB&I’s, and other EPC consolidations, unfold. Many EPCs have struggled in the wake of the oil bust. The combined company will undoubtedly have synergies and cost savings, but, it will still have risk related to its focus on fixedprice contracts, according to Bloomberg. However, its greater scale and geographic diversification will offset some of that volatility. The merged McDermott-CB&I entity will rank sixth in the world – after Fluor, Jacobs CH2M, TechnipFMC, SAIPEM and Wood – according to McDermott.
FROM WELLHEAD TO STORAGE TANK
If size does give an EPC the wherewithal to fight cyclicality, enhance competitiveness, and leverage fixed costs across a larger base of business, project owners will benefit. Dickson said the new company will realize the full value of the combination by effectively managing risk, focusing on people and customers, and maintaining operational excellence.
While smaller companies are often known for their ability to nurture a close connection between sales force and engineering staff – one that prevents informational silos and generates opportunities for collaboration and innovation – McDermott and CB&I may yet retain their innovative edge and a passion to serve niches and small projects. Dickson said the new company’s operational expertise is scalable and will be leveraged across the organization to maximize its ability to execute for customers and unlock value. “Together, we will service customers from the wellhead to the storage tank. Combining our operations will give us a presence in both upstream and downstream markets. It will make us the single source provider offering project development support across onshore, offshore, subsea, LNG, petrochemicals, refining and power markets,” Dickson said. The McDermott-CB&I deal, with McDermott owning 53 percent of combined company and CB&I 47 percent, is expected to close in the second quarter of 2018. The new company has yet to be named. BB Based in the U.S., Lori Musser is a veteran shipping industry writer.
CREDIT: MCDERMOTT
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