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Module 3-Multiples

This document provides a comprehensive overview of an energy technology company headquartered in Paris, France, emphasizing its operations in oil and gas. With a revenue of €8.2 billion and assets worth €11.5 billion, the company employs 38,000 people across 48 countries, focusing on onshore, offshore, and subsea projects. The analysis addresses financial goals, operating priorities, and valuation issues stemming from major acquisitions, GAAP vs. IFRS discrepancies, and the challenges faced in determining accurate valuations through comparable companies.

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Module 3-Multiples

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  1. Module 3-Multiples Drew Williams

  2. Basic Facts • Energy technology, project management, and maintenance (97% from oil and gas) • Headquarted in Paris, France • Revenue = 8.2 Billion Euros • 11.5 Billion in Assets • Employ 38,000 people in 48 countries • 2 Major Segments • Onshore/Offshore • Subsea—niche area

  3. Customers

  4. Financial Goals and Operating Priorities 6-8% margins on Onshore/Offshore projects ~15% margins on all subsea projects Continue to be the leader in tough climate and subsea contacts Keep a consist and robust order backlog Continue to innovate through extensive investment in R&D Focus on high growth areas i.e. Asia, Middle East, Brazil

  5. Products

  6. Major Acquisitions • Global Industries Ltd. • December 2011 • 100% Ownership • Sub-Sea know-how • Further entry into US and Mexican waters • $1.262 Billion Purchase • Issues • Did not produce 2011 Financials • Solution: Use 2010 financials + Extrapolate 2011 Quarterly Income Numbers

  7. Major Acquisitions • Stone & Webster Process Technologies • Purchase segment from The Shaw Group • Refining and Petroleum Chemicals—diversify • Further enter US Market • $295.3 Million Purchase • Isssues • No Financials for this Segment within Shaw • Purchased a segment of a segment • Different Fiscal Year (August 31 Year End) • The Shaw Group purchased in Feb 2013 • Solution: Input=0, cite as flaw in calculation, rely on group members more heavily

  8. Combined Balance Sheet • Potential Issues: • GAAP vs. IFRS • Synergies • Currency Translation Changes • Different Account Classifications • Does not include a major acquisition

  9. Combined I/S • Potential Issues: • GAAP vs. IFRS • Synergies • Currency Translation Changes • Different Account Classifications • Does not include a major acquisition • Extrapolation of 2011 numbers

  10. Reformed Balance Sheet

  11. Reformed Income Statement

  12. Valuation Using Multiples • Select performance measure • Balance Sheet • BV • NEA • Earnings • EPAT • NI • CI • Sales • Select Comparable Companies • SLB • HAL • BHI • Compute

  13. Steps to Computation Step 1: Start with Enterprise of Equity Value for comparable forms Step 2: Divide by Performance Measure for each firm Step 3: Average given multiples Step 4: Multiply Average multiple by company specific measure Step 5: Subtract out claim of debt holders (if any) Step 6: Divide by shares outstanding

  14. Industry Comparables *All firms are much larger and offer more products/services than Technip • Schlumberger • Sales = $42,149 • NEA = $45, 794 • Halliburton • Sales = $28,503 • NEA = $18,426 • Baker Hughes • Sales = $21,361 • NEA = $21,189

  15. Balance Sheet Multiples *Current Price = $22.13

  16. Earnings Multiples *Current Price = $22.13

  17. Sales and Industry Specific *Current Price = $22.13

  18. Eliminating SLB • SLB • Much larger • Multiples vary from other companies • Different Services *Current Price = $22.13

  19. Averaging All Methods Final Estimation = $23.19 *Current Price = $22.13

  20. Analysis • Comparable Problems • Industry group is less than perfect • Huge size differences • GAAP vs. IFRS • Differences in services and margins • Input Problem • EPAT/NEA are imperfect • 2013 Financial Data • Company Specific details ignored

  21. Final Conclusion • Bad Valuation • Too many unknowns • Comparables are crude and unspecific • Difficult to discern which multiples are best • Static analysis, new information available • Assumes comparable companies are correctly valued • Positives • Gives a good estimate • General idea of what measures are important in the industry

  22. Questions

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