History indicates National Oilwell Varco’s (NOV) purchase of Grant Prideco may benefit the latter’s shareholders more than its customers.
Why? Acquisitions of companies with higher customer satisfaction ratings by lower-rated players tend to hurt the purchased company more than help the ratings of the acquirer.
More so, bigger is not always better in terms of execution or customer satisfaction. Some customers like the broader line of products NOV now offers as a result of the past merger between Varco and National Oilwell. However, a number of NOV customers express concern.
We expect some oilfield customers doubt NOV will meet their needs as well as Grant Prideco once did. This is especially the case for drilling contractors, since Grant Prideco is a major supplier of drill pipe.
In fact, 2007 customer satisfaction ratings show Grant Prideco as first in drill pipe and second in drill bits. On the other hand, NOV rates in the bottom half of several categories for rig-related drilling equipment.
Competitors may exploit any concerns over quality. Smith International already successfully competes with Grant Prideco, while maintaining high levels of customer satisfaction. And Smith could be a beneficiary of any customer alienation resulting from the merger.
In short, NOV needs to recognize these concerns so quality and service do not deteriorate once Grant Prideco is absorbed. If not, loss of market share for Grant Prideco’s products is a risk.
Time will tell whether NOV will successfully handle its integration challenges. From what we see, it’s going to require more attention to execution and customer needs than was displayed with the Varco–National Oilwell merger a couple of years ago.
What are your opinions on the merger now that almost 15 years have passed?
Did they fail to meet your expectations or did they exceed your expectations?
It’s a good question. I’d have to say NOV slightly beat expectations, mostly because our expectations were low. In 2007, NOV was blowing and going, promising much to investors and customers. While it didn’t do as much with the assets as I think Grant Prideco would have if it stayed independent, the acquisition helped NOV establish a foothold in downhole products. Our data show NOV drill bits are considered average, while its drill-pipe is highly regarded. On balance, we’d give the company a grade of C+ (maybe a B-). Keep in mind we’re not big fans of M&A in general.