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CEO Pete Miller Explains NOV’s Acquisitions Strategy

By Taylor Muckerman – Jan 16, 2014 at 4:03AM

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With as many as 300 acquisitions under its belt, how does NOV decide what to take on next?

With operations in over 1160 locations worldwide, National Oilwell Varco (NOV 2.18%) is a leading provider of equipment and services to the oil and gas industry through its three segments; Rig Technology, Petroleum Services & Supplies, and Distribution & Transmission. CEO Merrill "Pete" Miller has held a number of senior executive positions with NOV, beginning in 1996. Miller also serves on the boards of Chesapeake Energy Corporation (CHKA.Q), Offshore Energy Center, Petroleum Equipment Suppliers Association, and Spindletop International.

Would National Oilwell Varco want to expand into the subsea business? Certainly, Miller says, but only under the right circumstances. In this video segment he explains how NOV approaches the acquisition -- and integration -- of new companies. The full version of the interview can be found here.

A full transcript follows the video.

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Taylor Muckerman: When you look at your competition right now, you look at companies offshore in the subsea business, not necessarily intruding on your FPSO business, but you look at FMC Technologies (FTI 3.00%), GE (GE -0.41%) is really pouring a lot of money into the energy space right now, and then the joint venture with Cameron (CAM.DL) and Schlumberger (SLB 3.45%), getting into their one subsea joint venture.

I was just wondering if you see that potentially becoming a threat, or if they're just going to stay in that subsea technology market that you guys have kind of let them have at the moment?

Pete Miller: Actually, the things that we do are complementary to what they do. Quite frankly, they've got the manifolds and everything on the ocean floor. I've got the flexible pipe and the FPSO on the surface to be able to take care of that.

Would we want to get in that business? Sure, I think it makes some sense, but it's pretty frothy. It's a pretty expensive business right now. We don't like to buy things on the expensive side. We wait until they get a little cheaper.

But we feel like we've got a wonderful position in FPSOs and flexibles, and that's going to enhance what they do, so as they get more and more production manifolds in, we're going to be able to hook them up and it's going to be great business, I think, for all the companies mentioned.

Muckerman: You mentioned it being "frothy" businesses. Is that something that you consider, or are you looking at the technologies that you want to acquire, first and foremost, or are you looking for a good deal, first and foremost?

Miller: Well, I think first and foremost you have to look for something that fits. Generally speaking, that's going to be a technology, that's going to be a product, and it's consistent with our strategy. Then you've got to look at the price.

But you've got to be patient, too. A lot of these companies that we've bought, we've had discussions for three or four years, and then all of a sudden the moon and stars align appropriately and you just move. You go ahead and buy them at that point.

I think my first conversation with Varco was in 1998, and we announced the deal in August of '04, and closed in March of '05, so we're patient people.

Muckerman: Obviously working out for you, and that confidence that you have in your acquisition strategy. How much weight do you rely in that when you're analyzing a deal, thinking to yourself, "We can bring this company in without a problem?"

Miller: You know, it really matters a lot. A lot of companies, you're going to have to spend time on "What's our integration philosophy? What are we going to do? How are we going to get the synergies?" We know how to do that.

We've got an integration manual like this. It used to be like this, but every mistake we made, we kept adding to it, so it's a pretty thick manual right now. But the one thing we don't spend a whole lot of time on is how are we going to integrate it? We've got SWAT teams that go in and get that done real quickly.

The biggest issue is, does it fit strategically? Do we need the product? Does it give us something that we don't currently have? If it does, good. Let's go get it.

Muckerman: What do you think has helped out with that from the top down in your company culture, to really allow your employees to buy into these new companies coming into the fold like that?

Miller: I think the thing that's been so attractive is people have understood that it provides opportunity. I tell everybody in this company, "I'm not sure what a CEO's supposed to do," but one of the things that I do try to do is provide opportunity to our employees. You provide that opportunity by growing.

As you continue to grow and people get the chance and actually see the opportunity, then they become charged up and say, "OK, I've got to help on this next acquisition." When they look at an acquisition coming in, they look at the opportunity it affords both to the employees, and to our customers, and to our vendors, and that gets everybody pretty well motivated to make sure we're doing it right.

Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends FMC Technologies and National Oilwell Varco. The Motley Fool owns shares of General Electric Company and National Oilwell Varco. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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