article

Bigger fish swim into deeper waters

Wednesday, 7 February 2007
Francine Pennington

STAYING afloat in today's marine service industry is becoming progressively difficult as companies find themselves not only competing for contracts and work, but also staff and skills in an increasingly tight job market.

But a wave of service providers is suddenly discovering the benefits consolidation can bring to help keep their heads above water and expand their businesses both at home and abroad.

Neptune Marine Services, which has just announced its fourth takeover in six months, is focusing its growth strategy on acquisitions, while Mermaid Marine Australia is merging with P&O Maritime Services to create what it says will be the country's leading marine services company.

Meanwhile earlier this month, a Norwegian company stepped in with an $85 million takeover deal for one of Australia's leading subsea service providers, Upstream Petroleum.

Moving on up

Takeovers and mergers are proving to be easiest and fastest way for service providers to move into the international arena, according to Neptune managing director Christian Lange.

"For us it's about building an integrated portfolio of service providers so we can leverage our participation in greater-sized projects, both in South-East Asia and domestically," he told Petroleum.

"Consolidation drives economies of scale, it reduces competition and improves a company's ability to move from being a domestic player into an international one."

As well as breaking down geographical boundaries, a new or expanded skills base can also open up new opportunities.

For instance, Neptune's recent $2.6 million acquisition of Perth-based Allied Diving Services brought with it a swag of opportunities in the blue chip and government areas.

And even before the takeover was complete, the duo won a joint oil and gas repair project from Apache Energy that Lange said would have been impossible for either company to undertake alone.

Allied agreed, with its principal Colin Murphy saying at the time: "Neptune has supplemented our core strengths, enabling us to take on a project in which we would normally have limited involvement."

But why the sudden deluge of activity? Lange says one motivator for consolidation in the subsea service industry was the worsening skills and labour shortage.

"A lot of companies are ripe for consolidation right now and it's a buoyant market we're in," he said.

"There's also the fact that oil and gas companies are outsourcing a lot more of their non-core activities these days, which is partly due to a lack of people in the industry with the right skills set and right experience, who tend to live within the services sector," he said.

Meanwhile, Mermaid Marine is also keen to ensure it's not left behind in the race to the top.

Subject to shareholder approval, the company will change its name to P&O Marine, a move that would allow it to leverage business opportunities off one of the best-known brands in the international shipping industry.

Under the $261 million proposed merger with P&O Maritime, Mermaid would still own about 39.6% of the new company and stay on the Australian Stock Exchange.

With an annual revenue of about $200 million, the merged company will have over 1300 employees, operate more than 40 directly owned specialist vessels and manage an additional 100 vessels for third parties.

The new company would also have the support of P&O Maritime Services' major shareholder, DP World, in growing the company in Australia and internationally in all business sectors.

"The merged company has the potential to become a major international player in marine services," DP World chief executive Mohammed Sharaf said.

Then there's Upstream Petroleum, which expects its takeover by Norway-based oil technology and service group AGR will create a "substantial player" in the Asia-Pacific region.

"Upstream has been looking for growth opportunities to increase our service offering and grow our market share in the Australian and Asia-Pacific oil and gas services market," managing director Cam Rathie said.

"In deciding to become part of AGR we believe we have found a partner with significant strengths, such as its technology products that will increase the services we can offer our clients, and importantly, with a complementary entrepreneurial and safety-based culture."

For AGR, the transaction is expected to increase demand for its specialist services and technologies throughout Australasia.

Feeding the top dogs a bone

One thing all of these takeovers or mergers have in common is the aim to keep the targeted company's management team as intact as possible.

For Upstream, the five founders will stay on in senior management positions: Mermaid's chairman will assume the same position in the new company, while its chief executive/managing director will become an executive director and chief operating officer. The new CEO will be current P&OMS Group managing director Andrew King.

Neptune has also struck similar arrangements with its takeover targets. There's a very good reason for this and it's not just to keep the top dogs happy, according to Lange.

"We're very strict in terms of the companies we look at, with current management and leadership of those companies featuring very prominently in our evaluation," he said.

"It's important for us that a good management team who understands the business is in place to steer the company and drive its expansion."