Seldom-seen mergers and acquisitions (M&A) activity is looming large for owners in Norway’s offshore-support sector, probably sometime after next month and possibly to the tune of $1bn.
New Orleans-based owner Harvey Gulf International Marine confirms it is still moving to buy a Norwegian offshore owner, even after its asset-hungry boss revealed the purchase of his third US company, Abdon Callais Offshore, at the end of last week.
TradeWinds broke the news last Friday about Harvey Gulf’s plan to carry out an acquisition of a Norwegian offshore owner, which is a truly rare event, given the strong family-controlled element of offshore owners in the country.
Some analysts are crediting this specific TradeWinds article on Harvey Gulf’s plans as being the catalyst that triggered roughly 6% to 10% rises of all Oslo-listed Norwegian owners of offshore-support vessels (OSVs), instantly adding about $200m in total to their shares as a group.
As reported last week, Harvey Gulf chief executive Shane Guidry wants to carry out an initial public offering (IPO) for his company in the US. In the run-up to the IPO, Guidry is looking to broaden his company’s international footprint by purchasing foreign owners with solid figures for earnings before interest, taxes, depreciation and amortisation (Ebitda).
Harvey Gulf’s purchase of US Gulf of Mexico (GoM) owner Abdon Callais, which was also revealed in the same article, caused some doubt in the market as to whether the planned Norwegian purchase is still on the table.
Guidry tells TradeWinds that he will move forward on a purchase in Norway after the Abdon Callais deal is closed sometime in October.
“Your story last week was correct, except the timing was swapped. We will close Callais first and then move on Norway,” he said.
However, along with reconfirming the intended move into Norway, the Harvey Gulf boss this week said he is willing to spend the previously reported $500m, but also up to about $1bn, depending on the Ebitda of the target company.
As a rough estimate, Guidry says he is willing to pay up to around $500m for a company with $100m of Ebitda, or as much as $1bn for a company with $200m of Ebitda.
Resistant to high premiums
“I will not be paying what Tidewater paid,” he quipped with a laugh, when asked to comment on the estimated 140% premium that the US owner paid to acquire Troms Offshore in Norway recently.
The Norwegian sector is a special focus for Guidry, whose family began operating in the North Sea at the very beginning of the oil rush in the late 1960s.
Guidry says Norwegian owners make for appealing acquisition targets because of the top quality of their marine assets and their operational expertise, which he believes will make an extremely good match for Harvey Gulf’s own operational strength and its strategy of assembling a fleet of high-spec tonnage.
“We want next-generation OSVs and construction vessels specially tailored for deepwater,” said Guidry.
“For my business model and the way I run my company, Norway is the best option for me. I think it will be a good match. We are definitely talking with someone there and we are working diligently on it right now.”
TradeWinds believes at least two target companies have been in direct contact with Harvey Gulf. Although tight-lipped about how far these acquisition talks have progressed, Guidry does admit that several Norwegian offshore owners are in his sights and, when pressed, concedes that a private owner is “a very good guess”.
After the acquisition, continued operations in Norway and the North Sea are also an absolute must, so a strong management team will already need to be in place at the target company. While TradeWinds argued the same point last week, Guidry confirms this is also his reasoning.
Raising fresh capital for a potential $1bn purchase in Norway is also not an issue for Guidry.
Reaping the benefits of the exceptionally strong GoM vessel markets, Harvey Gulf has been expanding by leaps and bounds by using only cash flow and bank financing. So far, no fresh capital has been injected by its majority owner, New York-based private-equity investor The Jordan Co. Jordan now holds 74% of Harvey Gulf, after taking 76% in 2008, while Guidry has upped his stake to 26%.
Fleet doubles to 90
The Abdon Callais purchase —which in effect doubles Harvey Gulf’s fleet to about 90 modern ships — is the third US domestic acquisition for the company over the past 12 months, along with the Bee Mar and Gulf Offshore Logistics (GOL) deals. Guidry says all three amount to close to $1bn in transactions and, again, were carried out on the back of cash flow and debt.
On top of the recent acquisitions, Harvey Gulf has 10 newbuildings on order in the US, including high-spec vessels and advanced LNG dual-fuel ships, all of which represent an investment of around $605m. The Abdon Callais purchase adds another four newbuildings to this total, although Guidry says he cannot comment on a value of the orders or the exact size of the acquisition until the purchase is closed.
However, with Bee Mar at about $250m and GOL at around $270m, the Abdon Callais price would take all three close to $1bn in total.
Guidry adds that about 20 Adbon Callais ships built after 2004, all of which have dynamic-positioning one (DP1), will eventually be phased completely out of the US GoM market to places such as Mexico. The remaining 28 DP2 vessels, all built after 2010, will stay in the GoM and beef up Harvey Gulf’s deepwater activity.
The Harvey Gulf boss says he is expecting another strong burst of activity in his home waters in the US GoM in 2014, with the arrival of seven or eight new deepwater drilling units.
At the moment, the company is looking at having a fleet of about 60 DP2 ships aimed at the lucrative deepwater and ultra-deepwater activity in the GoM. This fleet count places Harvey Gulf among the three top DP2 owners in the region, behind private owner Edison Chouest Offshore and closer to being on par with US-listed Hornbeck Offshore Services.
Meanwhile, offshore specialist analysts in Norway say Harvey Gulf’s move into the country makes sense, given that many of the OSV owners are starkly undervalued.
As an example among listed players, Arctic Securities analyst Kristoffer Riise Iden says Farstad’s discount to net asset value (NAV) is at 56%, Solstad at 60% and Havila Shipping at 70%. At the same time, US owners are trading above NAV.
“This is a good time to buy Norwegian OSV shares. Long-term investors may be able capture about 10 years of rising markets in the offshore sector, which will translate into increased earnings at the companies,” said Iden.
