This article first appeared in The Edge Malaysia Weekly on December 9, 2024 - December 15, 2024

GFM Services Bhd (KL:GFM) is exploring the possibility of acquiring oil and gas (O&G) outfit Shapadu Energy Services Sdn Bhd, according to sources. While details are scarce, indications are that the deal could be a mix of cash and shares.

“The negotiations are still ongoing, but GFM is serious with the plan [to buy Shapadu Energy] as the company wants to expand its O&G portfolio,” a source tells The Edge.

Another source familiar with GFM says, “This is not the first time GFM is acquiring an O&G company. M&A (mergers and acquisitions) has always been part of the company’s plans.”

When contacted, both GFM and an executive with Shapadu Energy declined to comment on the potential corporate exercise.

GFM is known as an integrated facilities management (IFM) company focusing on civil and structural, electrical, landscaping and mechanical systems. It ventured into the O&G sector after it bought a 49% stake in Highbase Strategic Sdn Bhd in 2019. This was followed by the purchase of the other 51% of the company in November last year.

Highbase was a loss-making entity when the acquisition was made five years ago, and the pandemic caused a further setback. Nevertheless, GFM managed to turn it around this year. The foray into the O&G sector has since paid off, with the company recording a 16% rise in net profit to RM19.13 million for the first nine months of 2024, from RM16.5 million in the previous corresponding period. This was on the back of a 54.8% jump in revenue to RM151.51 million from RM97.88 million previously.

During the period in review, the O&G segment contributed 30% to GFM’s revenue and the IFM division remained the largest top-line driver with 60%. The remaining 10% came from the concession segment.

GFM managing director Ruslan Nordin, in an interview with The Edge in May, indicated that the group was on the lookout for M&A opportunities to expand its recurring income because of fluctuations in earnings as an IFM contractor. “We will continue to look for more possible M&A opportunities,” he said.

Ruslan holds total equity interest of 19.67% in GFM, with a direct stake of 8.84% and an indirect stake of 10.83% through GFM Global Sdn Bhd. The other shareholders are the company’s executive directors Mohammad Shahrizal Mohammad Idris, with a direct stake of 13.38%, and Zainal Amir, who holds 12.27%.

If the deal with Shapadu Energy goes through, GFM will increase its exposure in the O&G sector.

This is not the first time the shareholders of Shapadu Energy want to spin off the company. Back in 2014, there was a plan by Shapadu Energy’s parent company Shapadu Corp Sdn Bhd for an initial public offering (IPO) of the former, but the plan fell through partly due to the global crude oil crash that started in September 2014.

Shapadu Corp is controlled by the family of the late Datuk Shahrani Abdullah, a prominent businessman in the 1990s and early 2000s. Shapadu Energy specialises in hook-up and commissioning services, as well as offshore construction and maintenance for the O&G sector. The company is also involved in onshore petrochemical and plant construction — similar to GFM’s O&G division.

More recently, Shapadu Energy is understood to have been awarded one of 18 packages by Petroliam Nasional Bhd (Petronas) and its production sharing contract partners, for maintenance, construction and modification as well as hook-up and commissioning services. The contract could be valued at about RM500 million, say industry sources.

Nevertheless, Shapadu Energy is a loss-making outfit. According to its filing with the Companies Commission of Malaysia, it suffered an after tax loss of RM13.37 million in FY2023, compared with a profit after tax of RM2.46 million a year earlier. This was on the back of a 34% jump in revenue to RM74.7 million from RM55.74 million previously.

It is unclear at this point what the valuation for the acquisition of Shapadu Energy is pegged at, as the details of the discussions between GFM and Shapadu Corp executives are being kept under wraps. A source says the pricing will only be decided when they sign a memorandum of understanding to start the negotiation process.

Through Highbase, GFM has been involved in the integrated turnaround main mechanical and maintenance mechanical static (TA4MS) contract, which covers operations and maintenance services for three facilities at the Pengerang Integrated Petroleum Complex in Johor.

The five-year contract was awarded to a 51:49 joint venture (JV) between Highbase and Singapore-listed Mun Siong Engineering Ltd (MSEL) by Petronas in 2019. The JV recently secured a three-year contract extension until March 2027, with an outstanding contract value of RM171.4 million.

Having declined nearly 9% year to date, GFM’s share price closed at 25 sen last Thursday for a market capitalisation of RM186.42 million. The shares were trading at a trailing 12-month price-earnings ratio of 5.5 times.

As at Sept 30, GFM had RM295.83 million in borrowings and total cash of RM122.9 million. Most of its debt is ring-fenced by its concession contract for UiTM Mukah.

If the acquisition by GFM pans out, it will be the latest consolidation attempt in the O&G industry, as well as a test of appetite for industry players to embark on more such exercises.

Deal-making in the O&G sector has been robust this year, with some companies seeking to scale up their operations while others are looking for an exit. The elevated global crude oil prices and increasing capital expenditure by oil majors have also given a new lease of life to O&G players that were severely hit by the oil rout in 2014 and Covid-19 pandemic that started in 2020.

The latest potential M&A between two O&G giants — MISC Bhd (KL:MISC) and Bumi Armada Bhd (KL:ARMADA) — is expected to create a huge floating, production, storage and offloading operating company.

In March, Yinson Holdings Bhd’s (KL:YINSON) major shareholders bought a 50.2% stake in offshore support vessel (OSV) provider Icon Offshore Bhd from state-owned private equity firm Ekuiti Nasional Bhd for RM172.2 million, or 63.5 sen per share, in cash.

Five months after the deal, Icon Offshore announced a slew of acquisitions totalling RM437.5 million, to be paid in shares, including Yinson’s offshore marine business for RM160 million. The acquisition doubled Icon Offshore’s fleet size by another 40 maritime vessels.

Icon Offshore also bought a 51% stake in Yinson Power Marine Sdn Bhd for RM18 million and a 70% stake in Regulus Offshore Sdn Bhd for RM136 million. Yinson Power Marine provides marine transport services and leases out tug boats and barges, while Regulus Offshore offers leasing, operation and maintenance of OSVs. 

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