David Dickson, President and Chief Executive Officer for McDermott, spoke exclusively to Pipeline Magazine’s Julian Walker about putting time, money and effort into getting the merger with CB&I right
What a year 2018 has been so far for Houston headquartered McDermott which on 10 May combined with Chicago Bridge & Iron Company (CB&I) and has hit the ground running since then by really focusing on getting the new culture of the combined firm right. As President and CEO of the new merged firm, David Dickson was adamant that this M&A merger under his watch will get cultural integration right.
“In the past, I have been involved in a number of M&A transactions and I always felt that the biggest failure in all these things has always been the lack of ability to address the whole cultural integration. I’ve seen more recent large M&A’s where there has been challenges regarding culture. So we said from day one that we are going to invest time, effort and money in developing a cultural integration plan.”
One way that McDermott has been able to avoid the pitfalls of past major M&A’s is that both companies worked during the closing period of the deal to get a lot of the soft stuff done. “In my view as CEO the combination is working well from an integration point of view in that we have progressed really well, further progressed than I anticipated at this stage. This is driven by a number of things. One of them being that we did a lot of work during the closing period of the deal from December, when we announced the deal, until May. We took a lot of decisions as to how the executive team would look like and the layers below that. So on day one, 10 May, we went straight into that team.”
He added: “We held a number of sessions that allowed the team to get together even before we closed, although we couldn’t discuss business, we had meetings about how we could work as a team and how we were going to function as a team. We did a lot of soft stuff well in advance of closing. So when we closed we were essentially working as a new team and that has allowed us to be well progressed through the integration.”
Getting cultural integration right
It is clear from Dickson that McDermott is approaching the cultural integration of the new firm from the bottom up. “We set up a number of summits taking a cross section of people across the group. Then in the first week of October we finalised our vision around our behaviours and values. We will start the process of communicating this to all our employees. This will set a good foundation of moving forward. This has all been done from the bottom up, this is not a top down approach with me as CEO saying what the values are.” He added: “The great thing about this, and what I like about it, is it has created a strong feeling of goodwill across all employees, who really feel that an effort has been made to take this seriously. I feel confident by doing this that it really puts us on a good foundation moving forward.
“In less than five months since we closed the deal we are going to announce our cultural values. I can tell you that in a number of M&A’s over the course of my career this usually happens after a year or two. We have done extremely well to get where we are.”
Strategic reasoning behind merger
Looking back at why McDermott went for the strategic merger with CB&I, David was clear that he had three main objectives. Firstly, he wanted a technology portfolio. Secondly, he wanted to diversify McDermott from being a pure upstream, offshore EPC contractor and finally he wanted to build scale. “All in all, I’m happy how things are progressing. In our Q2 earnings we highlighted that we are well advanced in terms of our cost synergies savings,” said Dickson.
Dickson is fully aware that there is still a lot of work to be done to get the CB&I side up to the right standards. “We have a lot of work to be done over the next couple of years. Any merger takes a couple of years to settle down and there is an element of CB&I that needs to be fixed up and problem issues that we have to work through. I am very confident that in the next two years we will have fixed all of those issues and that the organisation will be functioning very well and we should be taking advantage of what is a real growth market area for us in all of our capabilities.”
David explained that when the deal was announced, “We said we would be implementing the McDermott turn around playbook. CB&I has similar issues to what we were doing at McDermott at the end of 2013, early 2014. We need to focus on relationships with customers and partners. We are bringing in a new discipline, philosophy, structure and procedure. At the same time, on an operational side we are really looking to add and strengthen the team. We are looking to bring in a new leadership and executive oversight to ensure we don’t have the issues we had in the past.” An example of the plus side of the reorganisation, compared to when it was just McDermott alone, is that the company has brought in a new position of chief operating officer.
“Samik Mukherjee joined in early July. He has been a great assistance because of the scale of my expanded role. He has helped me along the way and he knows the industry inside out. He comes from a strong onshore and downstream background, which really helps balance me with regards to addressing the number of customers and various types of projects we now have,” Dickson commented.
One thing David is pleased with, is the timing of the merger, which could look like it was designed to coincide with the upturn in the market, but is just luckily a coincidence. “If you look at the timing of the merger it is great in relation to how the market is growing. The market is starting to pick up. Today, after four years of a market lull we are starting to see the offshore upstream market, including deepwater, come back. All the indicators are of a growing market and our in-markets worldwide are also showing the same indicators and we are starting to see bids for deep water projects,” he noted.
McDermott wants to expand its technology portfolio and the merger with CB&I will certainly help, especially with its Lummus technology “One of the things I like about technology is that it can create a pull through opportunity. If we are early with the customer, whether it is selling a licence or developing a technology, this could then lead to FEED contracts and hopefully to an EPC. “We have seen an opportunity of this pull through coming and one of the things we are focused on is with the McDermott capability, how can we look at modularisation, standardisation and digitisation. We feel that these can help reduce costs, improve efficiency and ultimately deliver a better project for the customer,” he said.
Dickson added: “On the McDermott side we have been focusing on digitisation for a couple of years and more recently we are adopting the digital twin or PML’s.
On the CB&I side they were looking at a number of digital initiatives. Now we have brought it all together, we are looking to have a standard approach for all our projects, whether it is in downstream or upstream. In the future we are looking to adopt some of this digital work we are doing for some of the large EPC contracts where we see digitisation in the use of data really benefitting delivery.”
Dickson talked specifically about McDermott’s end markets. “When you think about our end markets and technology, it is mainly driven by petrochemicals and refining. In the Middle East alone, the number of petrochemical complexes that are being talked about whether it is from ADNOC or Aramco is really opening up the onshore market in the Middle East. There is a lot happening.”
Middle East growth
The merger with CB&I has given McDermott a greater geographical reach. “Although we are a Houston headquartered company we are a true international company and as part of that we need to make sure we are present in most countries where we work or are planning to work,” explained David. “We designed the new organisation to be geographically present in most countries but to be local to our customers. The four areas are: North, Central and South America (NCSA); Europe, Africa, Russia and Caspian; Middle East and North Africa (MENA), finally, we have Asia Pacific. The reasons we structured it this way is that while today more than 50 per cent of our business comes from the NCSA area, in the next three to five years I anticipate a shift, in particular, to our MENA and Asia Pacific areas.
“I foresee the biggest growth opportunity for us as a company will be in the Middle East area, where we see a number of prospects within the onshore and petrochemical sector start to evolve. Across the countries we cover, we also see a number of offshore opportunities. We have a very close relationship with Aramco and there are a number of large projects about to be developed by Saudi Aramco.”
David talked about the revenue synergies that the new combined company can bring about. “When we did the combination we talked about revenue synergies, which are very difficult to measure but an example of a revenue synergy is taking a relationship with someone like Saudi Aramco, where McDermott has been very strong and CB&I who haven’t done a lot of work with them, but recently have signed an agreement to develop a technology with Aramco called Crude Oil to Chemicals. We see this as a revenue synergy where we are developing a McDermott relationship to work on a technology from Lummus. Ultimately, we are seeking an opportunity to become the EPC Contractor of that particular project, which is still a number of years down the line, but a crude to chemical facility would be a significant investment and would be a significantly large EPC contract,” he said.
Dickson feels that the oil and gas industry faces some tough challenges ahead with the most pressing being the lack of new talent. “
One of the challenges the oil and gas industry is facing is that globally the industry has had a tough time. We have lost a lot of good engineering technical resources that have left the industry and we have also had four years of not being able to bring in new young talent. Attracting the new young generation into the industry isn’t going to be as easy as it was before. We have to address that by making it more exciting.”
Last year was Dickson’s first year at ADIPEC and he was very impressed. “I thought as a conference it was one of the best in our industry. As a result I said to my team that this one event, we are definitely attending every year. This year, we will have one of our executive meetings in the UAE. We will have our full executive team present at ADIPEC. He ended: “One of the things that impressed me about ADIPEC is that there are a number of customers there that are talking about partnerships and international projects outside the Middle East. It really has become a strong hub for the industry. I thought it was extremely well attended and the quality of the meetings with customers and partners was excellent.”