McDermott International
McDermott is a massive engineering and construction firm for the energy industry. It collapsed just two years after a $6 billion merger with CB&I. The failure was caused by taking on high-risk, fixed-price contracts for massive liquefied natural gas (LNG) projects that suffered from severe delays and cost overruns.
The Autopsy
| Section | Details |
|---|---|
| Startup Profile | Founders: Unknown Funding: Public Company |
| Cause of Death | The CB&I Acquisition Crisis: The 2018 merger with Chicago Bridge & Iron (CB&I) saddled the company with billions in debt and a series of "fixed-price" projects that faced massive cost overruns. Energy Sector Volatility: Sharp fluctuations in oil prices delayed major offshore engineering and construction projects, causing a fatal gap in the company's revenue pipeline. Liquidity Starvation: Sustained losses on key LNG (Liquefied Natural Gas) projects drained cash reserves, leading to a loss of bonding capacity and the inability to bid on new work. |
| The Critical Mistake | CB&I Acquisition: Merger brought billions in debt and cost-overrun projects. Energy Volatility: Oil price fluctuations delayed projects. Liquidity Starvation: LNG losses drained bonding capacity. |
| Key Lessons |
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Deep Dive
In the Energy/CleanTech infrastructure world, "Revenue" can be a deceptive metric. McDermott reported billions in backlog, but that backlog was actually a liability because the cost to complete the work was higher than the contract price. The Freeport Overrun: A single project in Texas cost the company hundreds of millions more than anticipated due to labor shortages and technical errors. This "bleed" consumed the company's entire liquidity, proving that size and scale are liabilities when contract risks are mismanaged. The Legacy: McDermott emerged from bankruptcy in June 2020 after eliminating over $4.6 billion in debt. It stands as a warning to large-scale service providers: Growth through acquisition of high-risk contracts is a path to insolvency.
Key Lessons
Fixed-price engineering contracts face massive cost overrun risk.
Energy sector volatility can delay entire project pipelines.
Losing bonding capacity prevents bidding on new work—death spiral.