The WorleyParsons Oil Services Agreement is a Hail Mary Pass

If you can not beat them, join them.

This appears to be the guiding principle for WorleyParsons Ltd.'s aggressive takeover of Jacobs Engineering Group's energy, chemical and resource activities.

The Australian company, which derives the bulk of its money from the design, construction, operation and maintenance of refineries, offshore platforms and other giant equipment for the Oil and gas industry, will double more or less in size thanks to the $ 3.3 billion transaction announced Monday.

The amount paid by WorleyParsons is roughly equal to its own market capitalization of $ 4.7 billion ($ 3.3 billion) on the eve of the transaction. Even with a capital increase and a stock placement at Jacobs, which will double its net debt from A $ 663 million to A $ 1.5 billion. Nevertheless, late work – a measure of ongoing projects giving engineers an idea of ​​their medium-term earnings – will rise from AUD $ 6.4 billion at the end of June to about $ 11.5 billion after the addition of Jacobs' $ 7 billion backlog.

This gives the impression of a company that makes up for lost time. When the last energy boom ended and oil producers began cutting capital spending, WorleyParsons released a series of profit warnings and spending cuts that ultimately allowed it to generate revenue about half of what they were four years ago.

Although this downward trend has been reflected throughout the sector, the three major US players that dominate oil services – Schlumberger Ltd., Halliburton Co. and the spin-off unit of Baker Hughes, General Electric Co. – have been reconstituted. again for a while, a trend identified by my colleague Liam Denning last week. Even the second largest European players, such as TechnipFMC Plc and John Wood Group Plc, gained weight through acquisitions.

WorleyParsons itself is part of the takeover targets, thanks to the presence of the Dubai-based engineering firm, Dar Group, which is slowly nibbling its share register since last year.

The Jacobs deal will certainly help the front line of the situation, and may dissuade the Dar group from becoming more aggressive. But lower in the income statement, the picture is less convincing. The operating margins at Jacobs are not much worse than those of his suitor, but they will not help WorleyParsons catch up with Schlumberger and Halliburton in terms of profitability.

Its greater involvement in downstream activities and chemicals gives the unified company a less concentrated share of upstream revenues than WorleyParsons did in the past.

On top of that, the price paid is beautiful, if not rich – especially if you take into account everything that the Australian company has to try to finance. Oil and gas services and heavy engineering contracts in developed countries are typically trading at a multiple of about 8.4 times Ebitda, according to data from 319 transactions established by Bloomberg.

This multiple, or something like that, is quoted in the announcement of the takeover – but the company has to do some financial gymnastics to get there. The multiple of 8.5 times mentioned is "today's synergy of $ 130 million", a fairly important magic asterisk that you usually do not see in this type of business. Without this adjustment, the number rises to 11.5 times.

Even that underestimates him. The multiple is defined at the Australian dollar average exchange rate for the 2018 fiscal year of 78 cents a year, instead of the much lower current level of 71 cents. Recalculated at current prices, it rises to 12.5 times.

WorleyParsons is still recovering from a major restructuring. He should hope that paying such a high valuation gives him a chance to regain the North American market that he lost in the last crash. Otherwise, it is possible that indigestion is not far away yet.