Flat global demand for energy recently has been accompanied by a spike in mergers. And one of the most aggressive acquirers is oil services company Schlumberger (SLB).
This week, the company announced that it's paying $1.07 billion for Geoservices, a privately held business based in France. The majority owner is private equity firm Astorg Partners, which bought Geoservices in 2005 for $300 million.
While the deal will bring Schlumberger $491 million in revenues and a strong customer base, the real allure is Geoservice's technology. The company is a leader in so-called "mud-logging," which allows for real-time data analysis of deep-sea drilling and can help avoid hazards.
An Energy Pioneer
In 1958, entrepreneur Gaston Rebilly saw a big opportunity for developing systems to provide geological services. He joined several partners and began an extensive research effort, looking at studies, aerial photos and field surveys. Ultimately, Rebilly came upon the innovative concept of mud logging and started to apply it in places like Morocco, Algeria, Spain, Libya, Australia and West Africa.
With the oil boom in the 1960s and 1970s, Geoservices expanded into new businesses. These included well intervention and field surveillance. Such approaches help better manage mature oil fields.
In all, Geoservices has developed a broad portfolio of intellectual property, which is certainly critical as extracting energy (especially in deep waters) gets increasingly tougher. Plus, mud-logging will be a nice complement to Schlumberger's existing technology, called logging-while-drilling (this measures formations on a real-time basis).
Geoservices has also benefited from the managerial discipline of its private equity backer. For example, the company has boosted EBITDA from $49 million in 2004 to $98 million in 2009.
Interestingly enough, Schlumberger is already in the midst of putting together a $11 billion acquisition for Smith International (SII), which is expected to close during the second half of this year. That deal will give Schlumberger cutting-edge drill bits that use 4-D modeling to predict performance and accuracy.
But at 62 times earnings, the deal isn't cheap, and integrating Smith won't be easy. And now with the acquisition of Geoservices, Schlumberger will have to manage even more complexity. That may be one reason why its stock price has been edging down lately.
Introduction to Value Investing
Are you the next Warren Buffett?View Course »