CGGVeritas, the world’s largest surveyer of oilfields, agreed to buy Fugro NV’s seismic division for 1.2 billion euros ($1.6 billion) in cash to benefit from a forecast recovery in survey rates.
CGG will finance the acquisition, which adds four seismic-survey vessels to its fleet, through debt and a share sale and expects to complete the transaction by the end of the year, the Paris-based company and Leidschendam, Netherlands-based Fugro said in statements today.
CGG fell the most in almost four months as analysts including Credit Agricole Chevreux said the deal looked a “bit pricey.” The acquired unit generated sales of $1 billion with $161 million in earnings before interest, taxes, depreciation and amortization last year. The deal price implies an enterprise value to earnings ratio of 7.8, according to Chevreux.
“It’s a rather risky deal for CGG, which is not a big oil player and doesn’t have huge piles of cash to spend,” said Alexandre Andlauer, an oil and gas analyst at Alphavalue in Paris.
The global seismic survey business, which uses ships to look for the likely location of oilfields under the sea bed, is set to improve as oil companies increase offshore exploration spending, according to CGG. Rates had fallen after the 2010 moratorium on drilling in the Gulf of Mexico following the Deepwater Horizon disaster.
“It perfectly fits our strategy,” CGG Chief Executive Officer Jean-Georges Malcor said in a statement. “In particular, with immediate access in marine to high-end vessels at a time of market recovery.”
The acquisition will boost revenue by 31 percent to $4.2 billion on a pro-forma basis, the company said in a presentation, and add to earnings from 2013.
“In the context of a market that’s turning around, it will bring us the growth rates we are used to,” Malcor said later on a conference call.
CGG fell 5.3 percent to 24.44 euros in Paris, paring its advance for the year to 31 percent. Fugro climbed 2.1 percent to
53.48 euros in Amsterdam.
The companies also agreed to create a venture in seabed geophysics, which involves the installation of permanent monitors on the ocean floor. Fugro will make a 225 million-euro payment to CGG to secure a 60 percent holding in the venture. The business is expected to have revenue of 400 million euros in the first year of operation, Fugro said.
“It’s a fast-developing field,” said Malcor. “We expect double-digit growth in revenue. It will allow us to create a world leader in the field.”
Fugro decided to sell its seismic survey business because it lacks a market-leading position and earnings have been volatile, the company said in its statement. Fugro said it will maintain a position in the oil services industry in exploration, development and production.
“This divestment allows Fugro to exit the capital intensive and volatile seismic segment of the oil and gas exploration market,” Fugro said. “Most seismic companies have indicated fleet expansion plans in the immediate future, creating a clear window of opportunity for Fugro to complete the transaction.”