Acquisition Resources

The Weir Group Plc has announced that it has agreed to acquire SPM Flow Control, Inc for $653m (£328m). Anticipated revenues for calendar year 2007 are $320m (£161m).

SPM, based in Fort Worth, Texas, is a leading manufacturer of high-pressure well service pumps and related flow control equipment, which operate in abrasive, high-wear applications in oil and gas drilling and extraction. 

The acquisition of SPM provides a new platform for growth in an end-market and area that Weir understands well. Weir is confident that this acquisition provides significant strategic, operational and financial benefits, including an increased presence in the higher-growth upstream oil and gas market, with a particularly strong position in the high-demand well stimulation niche.

It will also provide a business model that is increasingly aftermarket-driven, as the installed base of SPM’s well service pumps grows, and the potential to increase sales of both SPM’s and Weir’s existing engineering services and products across the broader business platform of the enlarged group.

There will also be the opportunity in the medium term to enhance SPM’s productivity through the application of Weir’s lean process initiatives and production skills; and, it ill provide immediate earnings enhancement and an expected return in excess of the group’s cost of capital within three years.

Higher energy prices have driven an increase in oil and gas well development which, when coupled with the increasing use of well stimulation techniques to enhance hydrocarbon output, has resulted in strong demand for SPM’s portfolio of specialised well service products.

The consideration of $653m will be paid in cash on completion and will be satisfied by a combination of new and existing bank facilities and available cash balances.

The acquisition is subject to the approval of Weir’s shareholders at an extraordinary general meeting expected to take place in mid July 2007. 

Weir’s chief executive, Mark Selway, commented “SPM is an exceptionally well-aligned business in a sector in which we have been most eager to grow. It ticks all the right boxes for us. SPM has a great market position in a core sector for Weir and we have good potential to improve the business through our operational expertise, geographic profile and financial strength. We are confident that the medium term operational benefits and extended market opportunities will generate significant value for our shareholders.”