GLASGOW-based engineering company Weir has made its second acquisition in the US shale oil and gas sector in two months after snapping up US valve maker Novatech for $176 million (£113m).
The FTSE-100 company, which supplies pumps and valves to the resources industry, said its purchase of Texas-based Novatech will be funded from existing bank facilities and will immediately add to company earnings.
Chief executive Keith Cochrane said: "This deal enables Weir to broaden our after-market expendable product portfolio in this fast-growing sector, where increasing operating intensities require equipment and components to be more regularly replaced and serviced."
He added: "With the recent acquisition of Seaboard, this strengthens further Weir's presence in the North American unconventional oil and gas markets and builds a larger upstream product range to offer the developing international shale markets."
The acquisition shows Weir is determined to increase its presence in the fracking sector despite concerns expressed by some analysts in recent days that falling gas prices could have a knock-on effect on demand. This has weighed on Weir's share price.
However, Weir's shares yesterday rose 34p, or 1.8%, to 1961p, having earlier traded as high as 2004p.
The deal came only hours after US President Barack Obama used his State of the Union address to champion fracking as a key energy policy that could create 600,000 new jobs.
The technique, in which sand and chemicals are forced into the ground to push out hydrocarbons, remains controversial with some objectors worrying it damages water supplies and causes greenhouse gas emissions.
Weir said that adding Novatech's products would enhance its ability to cater to service equipment it has previously sold and supply customers with replacement parts.
The business is well known to Weir, as a long-standing local supplier to its SPM division which operates in the same sector.
Completion of the deal, which is subject to US regulatory clearance, is expected in February.
Chris Dyett, analyst at Investec, said the deal should add around 2% to pre-tax profits this year.
He said: "The acquisition looks a sensible fit and Weir will plug its products into its wider network in the US and internationally. Ninety per cent of this business is after-market and over the past few years it has grown strongly, ahead of the market, underpinned by shale gas and oil demand."
Alex Toms, analyst at Merrill Lynch, said: "This small bolt-on fits with management's strategy to build on its oil and gas position, at an attractive price."
Novatech posted revenues of $61.6m and earnings before interest, taxation depreciation and amortisation of $25.2m in its last financial year, which ended on September 30, 2011. This represented revenue growth of 88%, and Weir said it had continued to expand in the last quarter of 2011.
Starr L Pitzer Jr, the president, chairman and chief executive of Novatech, said: "We have worked with Weir's upstream business as a supplier for a number of years and have come to know the company well and admire the way they operate.
"Through joining the group, I believe that Weir's global sales and service networks will enable the business to grow, not only in North America, but also by taking Novatech products to international customers."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article