The Rise and Fall of Wood Group: A Scottish Corporate Legacy

Douglas Fraser, Business/Economy Editor, Scotland

Origins of a Giant

Wood Group began as a modest fishing boat repair yard, established by the Wood family in Scotland. The transformation into a global engineering powerhouse was ignited when Sir Ian Wood visited Texas in the 1970s. Upon witnessing the burgeoning offshore industry, he realized the potential lying within Aberdeen’s oil and gas sector. Under his leadership, the company grew exponentially, securing contracts and acquiring other firms, achieving a market valuation that soared above £5 billion ($6.5 billion).

A Risky Gamble

However, the company’s ambitious growth came with risks. The acquisition of a U.S. rival proved particularly detrimental, and Wood Group found itself grappling with challenges that exceeded its capacity. Despite the setbacks, Wood continued to thrive in engineering services—design, operations, and maintenance—in the oil sector, benefitting from the industry’s ups and downs while avoiding the direct financial exposure of drilling.

Turning Points and Declines

During its heyday, Wood employed over 50,000 individuals globally. Yet, post-Sir Ian’s retirement in 2012, subsequent leadership struggled to navigate the shifting landscape. Efforts to diversify away from oil and gas culminated in the problematic acquisition of AMEC Foster Wheeler, a deal fraught with liabilities. An external investigation revealed that corporate governance had faltered, leading to stalled accounts and a plunging share price—from a peak of £9 ($11.85) in 2013 to a mere 28p ($0.37) today.

With considerable debts looming due in the coming year and breaches of loan covenants this year, the company’s directors began exploring alternatives. Ultimately, they deemed a £242 million ($318 million) offer from Dubai-based Sidara as the most viable path forward. This deal, alongside an infusion of £340 million ($448 million) in injected capital, provides a lifeline but comes at the cost of further erosion of Wood’s independence.

Future with Sidara

The potential acquisition by Sidara promises a renewed opportunity for Wood’s workforce. Employees may benefit from opportunities to work within Sidara’s various divisions, allowing access to a broader client base and geographical reach. While the prospect of growth remains, it raises questions about job security and the transition from a historically Scottish firm to foreign ownership.

The Broader Impact

Should the deal proceed—with backing from both boards and Wood shareholders—it will mark another significant shift in the landscape of Scottish business. There is an undeniable impact on local economies, with the risk of losing high-earning jobs and contracts that support ancillary services like legal, marketing, and accountancy professionals. This reflects a broader trend in Scotland where once-prominent corporations are slipping into foreign ownership.

Legacy of Corporate Giants in Scotland

Historically, Scotland has birthed several corporate giants—the likes of Scottish & Newcastle Breweries, Halifax Bank of Scotland, and Stagecoach—each facing similar fates of being engulfed by larger entities. The merging of established brands into global conglomerates has frequently led to the diminishment of local autonomy and control.

In the financial sectors, several Scottish institutions have followed suit, losing their corporate identities to larger, often international, firms. Examples include the merger of Standard Life and Aberdeen Asset Management and the acquisition of TSB by a foreign bank.

Changing Economic Landscape

This trend reflects a deeper enduring issue within the Scottish economy. The history of corporate shrinkage often originates from a reliance on foreign investment and the vulnerability of homegrown companies to external pressures. London, meanwhile, has become increasingly aware of the strategic importance of maintaining control over certain industries as the global economy shifts and evolves.

Currently, the UK government grapples with the implications surrounding critical industries spanning energy and defense. Unlike the past, there’s now a more deliberate approach to safeguarding firms that hold strategic significance, although it comes with the risk of only intervening in scenarios where failure is imminent.

Scotland’s Corporate Dilemma

The standing of Scotland as a nurturing environment for significant corporations has become fraught. Exporting operational headquarters has significant consequences on local employment and economic health. This ongoing trend calls for a reevaluation of how Scottish enterprises navigate global markets, balancing growth ambitions with the need to maintain roots and stability in their homeland.

As Wood Group’s fate unfolds amid a climate of financial volatility, the broader implications resonate across the Scottish business community. It echoes a narrative of resilience and loss, characterized by innovation, ambition, and the ongoing quest for stability in a rapidly changing economic landscape.