with Simon Wang, CEO Halcyon Offshore, Halcyon Offshore Pte Ltd
Can you give us a background of Halcyon Offshore and explain where the company fits within the Halcyon Group?
S.W.: Halcyon Offshore is the 100% wholly-owned operating unit of Halcyon Energy Corporation, which is a member of Halcyon Investment Corporation, a privately-owned investment company. Templeton Strategic Emerging Markets Fund III, managed by Templeton Asset Management Ltd and Credit Suisse are the other major shareholders of Halcyon Energy. Together Halcyon Investment, Halcyon Energy and Halcyon Offshore form the Halcyon Group. Halcyon Energy focuses on any business activity related to the energy industry, from fossil fuels to renewable energy. Halcyon Offshore, of which I am CEO of, is a multi-disciplinary engineering and construction services provider for the offshore oil and gas sector.
Rather than participating in labour- and capital-intensive building of vessels, Halcyon Offshore fills a servicing gap is three key areas, which we like to call PPS: Products, Projects and Services. The products section covers standard off-the-shelf products such as winches, standard launch and recovery systems and offshore cables. Under the projects section, Halcyon Offshore takes care of turnkey projects by equipping vessels with standard and specialized equipment. The services section then covers a wide range of services that are complementary to the shipyard, and are beneficial to the client and profitable to Halcyon Offshore. An example of such service is a recent project we executed for Seadrill. Seadrill built its vessel in Korea to take advantage of the well advanced shipyards. However because those shipyards work like conveyor belts, it is harder for them to customize the construction process. In this case, it was Total that contracted this vessel and asked for additional modifications from Seadrill. This is where Halcyon Offshore comes in. Seadrill contracts Halcyon Offshore which then takes care of the design, the labor, and the equipment needed to meet Total’s specifications. The equipment are shipped to Korea and once the vessel leaves the shipyard in Korea, Halcyon Offshore loads it with the crew and a portion of the equipment so work can be done en route to Singapore, where the vessel loads up again before it sails out to its final destination in offshore fields off the coast of West Africa.
One of the amazing aspects in the history of the company is the short amount of time in which it has grown to its current size while capturing some of the largest players in the industry. How has the company achieved this?
S.W.: I was tasked to run Halcyon Offshore as I am the only one among the four founding members of Halcyon Investment with the relevant industry experience. Robert Meyer, CEO of the Halcyon Investment, has strong skills in business development, strategy, planning and looking at the big picture in general. Pascal Demierre, CCO of Halcyon Investment, is a qualified lawyer with a background in the marine industry. Valentine Schillo, he CFO and fourth managing partner of Halcyon Investment, is a former investment banker. Teamwork and equality among the four of us play a critical role in Halcyon Group’s management. Compared to most parts of Asia, this is a very unique company structure that builds on complementary skills and where any major decisions require unanimous consent.
P.D.: This structure works because we communicate with each other almost every day. Communication is important to guide this business. At the same time, we can also bring different perspectives to the table. Together, we cover the operational, corporate, legal, financial and strategic aspects of running the Halcyon Group. One other strength of the company is that whenever a decision is unanimously taken by the four partners, things move extremely fast. This allows for faster growth.
What was the point where you started to acquire your large accounts?
S.W.: If you look at Halcyon Offshore’s customer base, 90% were already customers of OCF (Offshore Construction & Fabrication), a business unit comprising 4 companies that the Halcyon Investment bought out. The vessel owners were mostly clients of OCF’s winch manufacturers, while most of the shipyards were customers of the company’s accommodation fit-up arm. We decided to integrate the 4 companies into OCF, under Halcyon Offshore, to offer these clients a wider range of services. Except for a standard million-dollar contract per vessel under OCF, contracts under Halcyon Offshore could go up to USD5 to 10 million because of service integration. From steelwork to mechanical and accommodation work, the acquisition of OCF enabled Halcyon Offshore to take care of any service apart from the hull itself.
One of the key requirements for the companies being acquired is that they integrate well within the Halcyon Group. If the product is great, we invest in the company to let it grow within the group, thereby ensuring good quality, good pricing and a stable supply of components.
Is there a risk that as you grow, Halcyon’s corporate profile will become too diversified for larger companies seeking contractors that focus on a core business instead?
S.W.: This is an important challenge when acquiring new clients as a young company and at a stage where you have to create a sense of trust and confidence with your clients. When Halcyon acquires a company, we make sure that it is well integrated within the group, and that a corporate structure is put in place. To do so, we attract very experienced managers from different companies. Once clients notice that you do not simply buy a company and then leave it alone, but that you take great care and effort to properly integrate it in a larger corporation for better leverage, clients feel confident to cooperate. Sometimes the action speaks for itself, rather than adopting a hard-sell approach. If Halcyon performs very well, we will create further confidence, and attract larger contracts with those clients. Hence, it is important to study what is important to the client, think for them and go beyond what is expected. There is a Chinese proverb saying that you have received value for money when you pay someone to solve your problem, and they solve two problems instead.
While it takes three to three and a half years to build the management team in the companies you acquire, one of the fundamentals is also that the management of the company is ready to be acquired and to stay in place. Can you elaborate?
S.W.: There are a number of criteria for the types of company Halcyon targets. They need to be SMEs within the same industry, and most importantly, they are looking to extend the business continuity of the company even after selling it.
Halcyon looks for companies that want to grow, but do not know how. We are not interested in companies where the owners aim to sell and retire, unless the next generation of leaders plans to take over. Halcyon’s strategy is to build on the existing talent to help grow the company together using Halcyon’s integration expertise. We are proud that usually we do such a great job, the management of the acquired company usually become shareholders in the new entity!
Such models are hard to manage due to cultural clashes. How do you maintain equilibrium and to what extent is people management important?
S.W.: This is where the integration expertise comes in. First, Halcyon gets to know the existing management and the management that is going to stay. The key personnel in the company are then identified. This may not necessarily be the owner or managing director; it could be a a sales manager or operational manager who is key to the business. If such personalities are not present, it is crucial for the owner to stay. If the owner still plans to retire in such cases, one solution to guarantee a smooth transition is to use a service contract where the owner signs to stay on board for a number of extra years under Halcyon’s ownership to grow the business together. This transition period gives the entity sufficient time to look for a successor.
As for commercial development, we see Halcyon focusing on external growth, the creation of synergies as well as the generation of organic growth by taking old customers from its acquisition targets and passing them on within the group. Can you explain what your geographical plan is, the key markets you are looking at and whether you are looking at partnerships to grow further?
S.W.: At the moment, Halcyon has been focusing on South-East Asia, and to some extent, China and South Korea. 60 to 70% of our customers also deploy their vessels worldwide. As such, Halcyon Offshore services many companies that are in fact neither based in Singapore nor South-East Asia, but rather in the Middle East, Europe, North America and other regions. Australia is another market the company is very interested in. One of the reasons we bought Cables International (CI) was its stronger presence in Malaysia, a market that Halcyon Offshore is not established in. Moreover, CI also has an office in Australia, in which Halcyon Offshore has no presence.
We are also looking into the Middle East and Latin America, particularly Brazil, where the market has been attracting new rigs and offshore businesses. However, Brazil requires us to have a local business partner so we are currently negotiating with two companies to create a partnership there. The Brazilian corporate community is very professional and European in a way. If there is a system, you need to respect the system. Therefore, it is essential for Halcyon Offshore to find the right partners who are familiar with the business environment.
Currently a key development we are working on is to earmark a piece of land in China. This is important for us given the increasing competition from the region. Halcyon Offshore aims to set up operations in China to duplicate the capabilities the company has built in Singapore, Singapore will continue to be our stronghold. Singapore has traditionally been very strong in rig-building, and because of the location and the logistics support, all the major suppliers are present in the country. In the coming years, we will see Singapore evolving into a service hub, which is exactly Halcyon’s business. In the next ten years, the plan will then be to copy the model further and implement it in Latin America and the Middle East.
How do you approach China, a market known to be very difficult to enter?
S.W.: This particular difficulty is the reason why Halcyon Offshore negotiated with a few good companies to go into this market together and start with a small inner offshore supply base. Such a strategy provides us with a door opener to feel how the orders will come in from China. In addition, Halcyon Offshore already has a big client base in China. Vessel building activity in China basically comes in two different areas: there is the internal Chinese market and the export vessels segment. Halcyon Offshore currently has quite good connections in both circuits and has been taking promising orders. This entry strategy will be the fuel to expand into China.
To give an idea to our readers, what is the company revenue today and how many people do you have working for you?
S.W.: Halcyon Offshore started in 2007 with around SGD60 million to SGD70 million in turnover. In 2008, turnover increased to SGD127 million. With the crisis in the following year, the amount of orders basically remained the same but margins were squeezed leading to a reduction of SGD 30 million in turnover. Currently, the company is targeting SGD135 million of turnover for 2010 and we are rather confident of reaching this at the moment. Headcount wise we have a global operations team of over 450 permanent staff.
Robert Meyer announced that the company had SGD 100 million from internal revenue and an additional SGD 200 million from financing possibilities. This is a good time for acquisitions in which the company has been extremely active. Will we see Halcyon Offshore getting more involved in M&A activity?
S.W.: We have always been very active in M&A activities, which is a core growth strategy for Halcyon Group. We have spent over $100 million on 8 acquisitions since 2007, and in our view, these 2-3 years will be a good time for acquisitions as many projects that were delayed from last year will be back in the market this year, valuation expectations are more realistic and financing is easier.
You plan to become listed. When will we see Halcyon Offshore on the Singapore Stock Exchange?
S.W.: Halcyon Offshore plans to list in the next 9 to 18 months. The company is ready to do so and has been preparing for the listing by working together with companies such as Ernst & Young as well as PR agencies in the past three years. Timing is the essential factor now. The purpose of the listing is to finance Halcyon Offshore’s growth and fund further acquisitions.
When you obtain a listing, are you not afraid to lose the equilibrium between the partners?
S.W.: There are always pros and cons. At the moment, Halcyon is a private company with a long term vision, and we can make big plans and quick decisions. As a public company, we will get better exposure and access to contracts which are only available for listed companies, not to mention access to funding through the capital markets. We arrived at the decision to push for a listing after much consideration and as our decision making involves unanimous consensus, we are all totally committed to putting in our best efforts to ensure that our decision works out.
The other option to obtain new funding is of course to go to the banks and financial institutions.
S.W.: Exactly, especially when we have a very good relationship with the banks. Credit Suisse is one of Halcyon’s main bankers and also an investor, and has been with Halcyon since the company was just three months old. To build such relationships, communication is very important as well as the belief in what you are doing.
How do you want the company to be seen in 10 years from now?
S.W.: I hope that the Halcyon name can become a recognizable and respected name, a name linked to good quality offshore projects and strong corporate structure. It should not be about who is running the business, rather I hope Halcyon can be seen as a professionally managed corporation. This is already a very ambitious goal and a tough challenge for the coming ten years.
P.D.: We foresee Halcyon Offshore tapping into other public markets in the near future, which is especially helpful when dealing with Asian and international clients. There are two main benefits to listing in other public markets. Firstly it will help fuel our geographical expansion in markets such as the Middle East, South America and China. Halcyon has been in the Middle East for a couple of years now, but it is a very difficult market which requires a lot more focus and a fair amount of capital. If it would be necessary to set up a headquarters or facilities in the Middle East, it would probably be in Bahrain. The government there has been trying to attract a lot of foreign investment lately. The living conditions are good and the society is well organized. Moving into South America, and Brazil in particular, is mainly driven by customer requests. A second benefit of getting listed is the capital raising that can be used for further acquisitions.
Over the next five to ten years, I see Halcyon continuing to acquire SMEs within Singapore, and consolidating what Halcyon sees as a fairly fragmented industry. The whole oilfield services industry has a few thousand companies in Singapore. Many of them are strong family-owned businesses that have been around for some twenty years. The issues within these companies are either succession–related or a lack of sufficient capital structure. The Halcyon Group on the other hand is an investment company that was founded after the old Chinese conglomerate model. The purpose of the company in the future is thus to further diversify into many different business to end up with a portfolio of different companies.
What is your final message to the readers of Oil and Gas Financial Journal, who might in fact become your future partners?
We believe that the Halcyon Group has great potential for continued growth. We do not aim to buy and sell. The goal is to buy, integrate, grow and sustain the company to create a bigger and stronger entity and service the industrial developer. It will be one company with multiple solutions.