International oil and gas facilities service provider Petrofac has floated on the LSE, achieving a market capitalisation of €1.1bn.
Seizing the opportunity
Petrofac is an international provider of facilities solutions to the oil and gas production and processing industries. Through its three divisions - engineering and construction, operations services, and resources - the company designs and builds oil and gas facilities; operates and manages facilities and trains personnel; and has the ability to co-invest in facilities and projects to align itself with its clients. Petrofac has 18 offices around the world and employs over 5,500 people.
When 3i first invested in the business in May 2002, Petrofac was a well-managed engineering, procurement and construction business with a strong presence in the USA and the Middle East. However the company's management, headed by CEO Ayman Asfari, had bigger ambitions for the business. They wanted to strengthen the company's balance sheet, carry out a restructuring of the business and transform it into an integrated facilities solution provider with a co-investment portfolio.
The experience of 3i in the sector helped convince management that 3i was the right investor to provide funding to achieve these objectives. 3i provided Petrofac with €30m of funding in the form of a subordinated loan, which could be converted to 13% of the equity. In 2004, 3i negotiated an increase in its option to 16.2% in recompense for facilitating a share buyback and debt raising exercise.
Adding value to the board
Aside from investing capital in the company, 3i introduced Michael Press as an independent non-executive director and Keith Roberts, the eventual CFO, to the business.
Press has helped the management team develop its business strategy and has acted as an independent voice on the board. The importance of his contribution was recognised by the management team post-IPO when he was asked to stay on and was named senior independent non-executive director.
Roberts first came into contact with Petrofac when 3i commissioned advisors Hawkpoint Partners to carry out exit diligence at the time of the investment. Roberts subsequently left his position as a Managing Director of Hawkpoint to become Petrofac's CFO. "Keith has put in place rigorous financial controls and has driven the M&A side of the business," explains Mike Hill, 3i investment director. "He has also ensured that the company adheres to good corporate governance practices. In short, he has been a major asset to the business."
A competitive edge
In December 2002, Petrofac's operations services business acquired PGS Production Services which gave it a strong foothold in the North Sea. 3i had been an investor in PGS and was familiar with the business and its management team. It was able to give Petrofac insights into the company and an acquisition was ultimately concluded.
The acquisition of PGS Production Services was followed by the purchase of RGIT Montrose, a leading North Sea training business. 3i had led a management buyout of RGIT Montrose in 2003 and initially introduced the company to Petrofac. The purchase of RGIT Montrose has enabled Petrofac to develop a word-class training business to provide safety and skills training to over 30,000 delegates a year. In many of the international markets in which Petrofac operates there is a growing requirement to increase the local content in major oil and gas projects by using local resources.
Petrofac now has the capability to train local staff to operate to the highest standards of safety and operational performance, which is becoming a key differentiator for the business in a number of markets. Given the strong market appetite for the offering, 3i has sold its entire stake in the company, realising €176m and achieving a money multiple of 5.8x.
Roberts said: "3i's support has been invaluable and has helped us in a number of ways in addition to providing the finance to support the initial reorganisation of the business. Its specialist knowledge of the oil and gas sector has helped us to strengthen our board by identifying our first non-executive director and in our M&A activity. 3i's investment has helped unlock a lot of value for all our shareholders, including themselves, and it really has been a text book example of how a relationship with a knowledgeable venture capital investor can provide mutual benefits."