"Oceaneering is the world's largest Work Class ROV (Remotely Operated Vehicle) operator and the leading provider of ROVs to the oil and gas industry," says the company. It might also be the most overpriced. Photo: Oceaneering International.

Oceaneering International (NYSE:OII) does not report its full-year 2014 earnings for another nine days. But the industrial submariner is already making news and winning headlines.

On Monday, in an unexpected development, Oceaneering announced its intention to purchase ocean bottom-mapping services provider C&C Technologies for $230 million in cash. From a business point of view, it's a match made in heaven.

Oceaneering's specialty is operating underwater, remotely operated vehicles (robosubs) to perform various tasks for the deepwater oil and gas extraction industry. Historically, the company has claimed upwards of 75% market share in this industry. C&C, according to Oceaneering, similarly uses "customized autonomous underwater vehicles and provides marine construction surveys for both surface and subsea assets, as well as satellite-based positioning services for drilling rigs and seismic and construction vessels." And C&C claims better than 90% market share in autonomous underwater vehicles operating in deepwater. 

Hand meet glove. C&C should fit in just fine with Oceaneering. But investors really want to know whether the math works.

Show me the money
Well, let's see here. Oceaneering is paying $230 million for a company that it expects to "generate $20 million to $30 million of" EBITDA, and "be accretive to earnings" in the year following the transaction's planned April 2015 close. At the midpoint of that range, we're looking at roughly a 9.2 times EBITDA purchase price to acquire a company that is at least GAAP earnings-positive.

That seems a bit expensive, given that Oceaneering International stock itself only sells for 6.8 times EBITDA on the open market. And it's not as if Oceaneering's stock is obviously underpriced, either. To the contrary, actually.

Valued on P/E, Oceaneering shares sell for 13.8 times trailing earnings, or right about where you'd expect a stock pegged for 10%-ish annual earnings growth over the next five years, and paying a 2.1% dividend yield, to trade. On the other hand, Oceaneering has produced inferior free cash flow levels in recent years. According to S&P Capital IQ data, in fact, Oceaneering produced just $133 million in free cash over the past four quarters, versus reported GAAP "profit" of $419 million.

This works out to a price-to-free cash flow ratio of more than 42 -- quite a bit pricier than the stock's 13-ish P/E ratio suggests.

The upshot for investors
Long story short, Oceaneering is an expensive stock, and it's anteing up to much to acquire C&C Technologies. That might be OK if Oceaneering was paying the purchase price with its own overinflated shares. It does explain, however, why C&C apparently preferred to be paid in cash.