National Oilwell Varco To Distribute Its Distribution Business

In late September, National Oilwell Varco (NOV) announced that it would spin off its distribution business, a unit which provides MRO supplies to the energy and industrial markets, into a standalone entity. According to CEO & Chairman Pete Miller, after a series of acquisitions from Schlumberger (SLB) last year, the business is now large enough (both in size and scale) to stand on its own two feet. While that is the official story, Sanford C. Bernstein analyst Scott Gruber believes that “given the recent disappointments in margin generation…investors have pressured management to become more focused.” ‘More focused’ is a code word for shedding units.

In the press release, Mr. Miller noted that the distribution group ‘would have over 415 locations and operations in 26 countries, representing approximately 85% of the revenue of NOV’s Distribution and Transmission Segment for the six months ending June 30, 2013.’  With revenues of approximately $4b and operating income of $185m in 2012, the segment comprised ~20% of NOV’s overall revenue, but only about ~5% of its operating income

Given its recent acquisitions in the space, it’s worth checking out the multiples it paid for some possible comparables. According to CapIQ:

  1. May 2012 – the company acquired CE Franklin from Schlumberger (SLB) at a reported ~8.1x EBITDA and .4x Revenue.
  2. April 2012 – the company acquired Wilson International at .4x revenue

Not surprising the multiples are so similar given the close timing and seller. The spinoff is expected to be completed in H1 2014 so there is plenty of time to dig into this when more information is released.

Disclosure: Author holds no position in any stock mentioned