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Will TechnipFMC Benefit from Synergies?

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TechnipFMC by size

According to FMC Technologies (FTI), TechnipFMC—the combination of FMC Technologies and Technip S.A.—would have generated ~$20 billion in combined revenue in 2015. Also, the combined entity would have generated ~$2.4 billion in combined EBITDA (earnings before interest, tax, depreciation, and amortization) in 2015. EBITDA is a measure of operating earnings. FMC Technologies accounts for 3.9% of the iShares US Oil Equipment & Services (IEZ).

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Comparing TechnipFMC with the industry leader

Schlumberger (SLB), the OFS (oilfield equipment and services) industry leader, generated $35.4 billion in revenues in 2015. Its EBITDA was $7.06 billion for the year. It will continue to be the industry leader even after the FMC Technologies-Technip merger.

How will the deal benefit from synergies?

FMC Technologies’ management expects $400 million pre-tax cost savings to arise through cost synergies by 2019. Here’s how:

  • Common platform – The commodity raw material cost is expected to fall. TechnipFMC will likely have a stronger relationship with vendors. Currently, FMC Technologies and Technip are both established global OFS players.
  • Volume effect – With combined production, economies of scale will apply to reduce costs.
  • Management right-sizing – The combined entity will have a single board. It will also have a stronger pool of resources and expertise.
  • Leverage infrastructure – Where FMC Technologies and Technip have the same geographical operations base, the office space and infrastructure base will be shared. It will lead to lower costs.

In the next part, we’ll analyze FMC Technologies and Technip’s latest financial performance.

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