AEA-backed Sparrows Group seen as near-term target – sector advisers

25 November 2019 - 04:02 pm UTC

by Michael Schoeck in New York and Patrick Harris in London

UK-based energy services business Sparrows Offshore Group is increasingly seen as a near-term exit candidate, four sector advisers tracking the target told Mergermarket.

 

New York-based sponsor AEA Investors is looking to bring the business to the market in the next 12-24 months, one of the advisers, who is in contact with AEA, said.

 

It could be that the business is brought to the market in the next few months, another of the advisers suggested.

 

AEA declined to comment. Sparrows did not respond to requests for comment.

 

The private equity sponsor has yet to appoint a sell-side adviser on a potential Sparrows sale, the first three advisers said.

 

As reported by Mergermarket, this year AEA hired RW Baird to sell two of its other UK oil and gas-related investments, global recruitment company NES Global and sealings company Lonestar Group.

 

AEA acquired Aberdeen-based Sparrows in September 2012 from CBPE Capital and grew the business via acquisitions, including Servtech UK in 2013 and Alpha Offshore Services in 2017, according to Mergermarket’s deal database.

 

Sparrows, which provides engineering products and services to the energy sector – specialising in lifting and mechanical handling, cable and pipe lay, and fluid power – has seen a recovery in its core oil and gas offering, the first and third advisers said, having suffered in the oil market downturn since 2014.

 

The company turned over GBP 189m (USD 244.3m) in 2018, compared to GBP 142m in 2017, according to its latest annual report on Companies House, with underlying profit of GBP 16m and GBP 7.4m, respectively. It derives 47% of its revenue from its UK business, and 53% from international markets.

 

Sparrows may be well regarded in particular because of its diversification into the renewable energy sector, all four advisers said. This came in 2017 with the acquisition of Danish renewables engineering, procurement and construction company, Alpha Offshore Services. Renewable energy accounts for about 30% of Sparrows’ overall revenue , the fourth adviser added.

 

The renewables addition is in line with a trend among oilfield service companies, driven by environmental, social and corporate governance concerns, to diversify into clean energy offerings, the fourth adviser said.

 

For example, GEV Group, a renewable-energy engineering, procurement and construction company, was acquired over the summer by Bridges Fund Management. Maven Capital Partners-backed GEV had an enterprise value of about GBP 30m at the time of its sale. Despite its small stature, the target had garnered the interest of several middle-market PE firms such as Magnesium Capital, Graphite Capital, NorthEdge Capital, LDC, Platinum Equity and Inflexion Private Equity Partners, as reported.

 

Sparrows dwarfs GEV Group, but its core business remains oil and gas, the fourth adviser said, with its renewables arm accounting for around 20-30% of its revenue.

 

While Sparrows is likely too large for GEV’s new sponsor Bridges, it could be of interest to funds such as Energy Capital Partners, Gryphon Investors and Clayton Dubilier & Rice, the second adviser said, while the third adviser said UK energy service-focused Blue Water Energy could also show interest.

 

Sponsor-backed strategics such as Carlyle Group backed EnerMech could also show an interest, the first and third sector advisers said.

 

Sparrows has offices in the UK, US, UAE, Angola, Singapore, Indonesia and Malaysia, according to its website. It was founded in 1946 and has more than 1,650 employees worldwide.