SilverBow Resources to be acquired for $2.1 billion

SilverBow Resources, a Houston-based E&P company, has agreed to be acquired by Crescent Energy, also based in Houston, for $2.1 billion. Combined, they will have the second largest production in the Eagle Ford Basin, behind EOG.



SilverBow, has been trying to fight off a takeover by its largest shareholder, Kimmeridge Energy Management. Kimmeridge had effectively offered $34 a share, whereas Crescent’s offer is $38 a share.

SilverBow was formerly known as Swift Energy, which filed for bankruptcy in December 2015. After the company emerged from bankruptcy in April 2016, it changed its name to SilverBow and went public the following year.  The company has taken on a lot of debt as it embarked on an aggressive acquisition and capex program. That attracted the ire of Kimmeridge.

Crescent was formed in December 2021 from the merger of Contango Oil, a publicly-traded company and Independence Energy, a private company. Crescent is controlled by KKR, a large investment firm.

The transaction is structured as an all-stock transaction, though SilverBow shareholders can elect $38 per share cash alternative (up to a maximum total cash consideration of $400 million). Crescent shareholders will own between 69% and 79% of the combined company. The current management of Crescent will run the combined company, which will also retain the Crescent name.

Crescent expects to generate between $65 million and $100 million in cost savings, through cost of capital advantages and elimination of overheads. The companies have many adjacent properties in the Eagle Ford which should also drive savings.

 

Investor Presentation

Vroom CFO to step down following restructuring

Vroom, the former high-flying online car retailer, has announced that CFO Bob Krakowiak is stepping down. He will be replaced by Agnieszka Zakowicz, the Senior VP and principal accounting officer. Mr. Krakowiak is not leaving the company as he has been nominated to the Board of Directors.



Vroom went public via a $468 million IPO in June 2020 and, at one point later that year, its market capitalization reached $8.2 billion. It currently has a market cap of $23 million.

The company relocated from Manhattan to Houston in 2022 in a bid to cut costs. Back in January, it announced it was winding down its e-commerce vehicles and closing its one physical dealership, Texas Direct Auto, in Stafford. It will concentrate on auto financing and its vehicle analytics company.

In early April, the company had announced it had completed the restructuring. However, its proforma financials of the ongoing business show that the company still has some serious difficulties.

For 2023, the ongoing business had revenues of $206 million and generated a loss from operations of $6 million. The company will still have net debt of $490 million and stockholders’ equity of $160 million. That equity figure includes $132 million of intangibles.

Mr. Krakowiak, who has been CFO since September 2021, will receive a severance equal to 12 month’s base salary. Conveniently, the company just bumped his salary from $565,000 to $650,000 in March 2024.

Ms. Zakowicz joined the company in January 2019 as Senior Director of Accounting Policy. Prior to that, she spent 18 years at PricewaterhouseCoopers.

SEC filing – 8-K Vroom CFO steps down

Sunnova CFO to step down

Rob Lane, the CFO of Sunnova International, will be leaving the company. He will leave on the earlier of June 30, 2024 or the appointment of a new CFO. The company has engaged a retained search firm to find his successor.



Sunnova provides solar power systems and other related products such as chargers and energy storage through a network of dealers and partners. Typically, Sunnova funds the initial investment of a system and generates revenue from leasing or power contracts with the customer. The company has its head office in the Greenway Plaza area of Houston.

The company started in 2013 and its operating losses have increased along with its revenues in recent years. In 2023, the company had revenues of $720 million and an operating loss of $243 million. An operating cash flow outflow of $238 million was swamped by a further $2.5 billion in cash used for investing activities.

Maturing debt wall

The problem for the company is that it has gross debt of $7.8 billion, with $2.3 billion of that due to mature before the end of 2025. Rising interest rates have created a double whammy with debt servicing costs rising and revenues growing more slowly as customers become more reluctant to take out leases.

According to a report in Bloomberg on May 1, the company is receiving advice from Moelis & Co on its balance sheet options.

Severance

Mr. Lane joined Sunnova as CFO in May 2019 and guided the company through its Initial Public Offering a couple of months later. He joined from Spark Energy, another Houston-based public company.

CEO John Berger, who also joined the company just before the IPO agreed with Mr. Lane that now was a logical time for a CFO transition. Mr. Lane will receive a severance of six months salary and a target annual bonus.

SEC filing – 8-K Sunnova CFO resigns

 

US Silica to be taken private by Apollo for $1.85 billion

US Silica, based in Katy, is to be taken private by Apollo. The deal values the company at $1.85 billion. The price being offered is $15.50, which represents an 18.7% premium to US Silica’s closing share price of $13.06 on April 25.



The company primarily produces silica which is used as a proppant in fracking. It also produces diatomaceous earth which is used as a filtration product in various industries. The company has revenues of $1.5 billion.

Long storied history

The company traces its roots to two companies over 120 years old. The first is Pennsylvania Glass Sand Company, founded in 1894 to mine sand from the Oriskany formation in West Virginia. It was acquired by ITT in 1968 and then by RTZ Corporation (now Rio Tinto) in 1987. The second is Ottawa Silica Company, founded in 1900 in Illinois. RTZ acquired the company in 1986 and merged it with Pennsylvania Glass Sand the following year to form US Silica.

4 PE owners in 16 months!

RTZ sold US Silica in 1995 for $120 million, which began a series of PE owners for the company. First up was D George Harris and Associates, who bought the business from RTZ. The eponymous founder died in 2007 and, shortly after, US Silica was sold to Harvest Partners for $200 million. Less than one month later, Harvest flipped it to Harbinger Capital Partners for $300 million. In turn, Harbinger sold the business 15 months later for $337 million to Golden Gate Capital.

Golden Gate took the business public in 2012 in an IPO that valued the business at $900 million.

The business moved its corporate headquarters from Maryland to Katy, TX in 2018.

The agreement with Apollo includes a 45-day “go-shop” period that will expire at 12:01 AM ET on June 10, 2024, which permits U.S. Silica and its financial advisor to actively initiate, solicit and consider alternative acquisition proposals from third parties.

Long- serving CFO Don Merril was terminated in October 2023. Kevin Hough, Corporate Controller, has been interim CFO.

https://www.prnewswire.com/news-releases/us-silica-holdings-inc-to-explore-strategic-alternatives-for-industrial–specialty-products-isp-segment-301394507.html

 

Houston Personal Injury lawyer indicted in $2.4m fraud

Houston attorney, Clyde Moore, known in his advertisements as ‘Car Wreck Clyde’, has been indicted for defrauding injured clients of settlement funds. His office manager, Mark Broussard, was also indicted. The estimated amount of the fraud was $2.4 million.



Moore is a personal injury lawyer. He and Broussard obtained cases by making cash payments to tow truck drivers, repair shop employees and others who would refer car-wreck cases to the firm. According to 2020 civil lawsuit filed by a client, the going rate was $1,000 for a ‘normal’ car accident and $1,500 for a commercial accident.

The scheme ran from 2012 to 2021 and was simple in nature. Moore’s injured clients would obtain medical treatment under a Letter or Protection from Moore’s firm through which Moore agreed to pay the bills of the medical providers. Moore would send these bills to insurers with demands for settlement. However, Moore had agreed lower reduced fees with certain medical providers. His firm would pocket the difference, rather than pass it onto the clients.

Moore, Broussard and three unnamed employees kept detailed ledgers of the amounts being skimmed. Moore would pay the three employees bonuses, based on their share of the skimmed proceeds. The civil lawsuit alleged the bonus paid to the employees was 3% of the amount skimmed.

Dispute between the parties

Interestingly, the case appears to have arisen from a dispute between Moore and Broussard. They were old friends, and Moore hired Broussard in 2012. They formed a partnership where Broussard was to be paid 50% of the net revenues on cases where he did the majority of the pre-litigation work, and 3% of revenues on all other cases.

The partnership broke down in 2017 over a dispute over what Broussard was allegedly owed. Broussard filed a lawsuit that resulted in a mediated settlement agreement that would pay Broussard $660,404. He alleges that Moore made only two payments and then defaulted on the promissory note. Broussard filed a new suit in 2022 to enforce the agreement.

Possible penalties

For conspiracy to commit mail fraud, Moore and Broussard face up to five years in federal prison and a possible $250,000 maximum fine. Moore is also charged with an additional count of mail fraud which carries a maximum prison sentence of up to 20 years and a possible $250,000 fine.

https://www.justice.gov/usao-sdtx/pr/houston-personal-injury-attorney-and-employee-indicted-defrauding-injured-clients-0

 

 

CFO of struggling Battery company steps down

Microvast CFO, Craig Webster, is to step down and become special advisor to the CEO for one year. No immediate replacement has been named.



Microvast manufactures lithium-ion batteries for commercial electric vehicles. It has a 1,400,000 sq.ft. factory in Huzhou, China and it is in the process of building a 577,000 sq. ft. facility in Clarksville, Tennessee. It has its corporate office in Stafford, TX with other facilities in Florida,  Colorado and Germany.

The company got embroiled in political controversy last year. Originally it was awarded a $200 million grant from the Department of Energy to help finance the Clarksville plant, but the grant was rescinded in May 2023 due to the company’s alleged links with the Chinese government.

CEO Yang Wu resides in Hawaii. The company went public via a SPAC in July 2021. Like many companies taken public in this way, its shares are under water and now trade at 52 cents. For 2023, it had revenue of $307 million and a net loss of $106 million.

The company has shelved completion of the Tennessee facility while it seeks financing.

Mr. Webster became CFO two years ago, though he has been a non-exec director since 2012. A UK citizen, he was living in New Zealand at the time of his appointment. He agreed to relocate to the US after his appointment, though the company just paid for the costs of his immigration expenses.

Under the terms of his separation, Mr. Webster will receive a lump-sum payment of $48,000 and a monthly salary of $16,667 until April 2025.

SEC filing – 8-K – Microvast CFO resigns

 

 

Schlumberger to buy ChampionX for $7.8 billion

Schlumberger (‘SLB’) has agreed to buy ChampionX for $7.8 billion in an all-stock transaction. ChampionX has its head office in The Woodlands.



ChampionX was formed in 2020 from the merger of Apergy Corporation (itself a spinoff from Dover Corporation) and the upstream division (aka Nalco Champion) of Ecolab. Apergy was primarily involved in Artificial Lift, while Nalco Champion primarily manufactured oilfield chemicals.

In 2023, ChampionX had revenues of $3.8 billion. Two-thirds came from Chemicals, a quarter from Artificial Lift and the rest from Drilling Products and Reservoir Chemical Technologies. The company has 7,300 employees in 38 countries.

SLB, which has a market cap of $79 billion, believes that ChampionX’s focus on production will reduce its cyclical exposure from the drilling side of the business. From a customer’s perspective, E&P companies treat drilling as capex, while production costs are operating expenses.

ChampionX also helps SLB increase its presence in North America. Currently, SLB generates only 21% of its revenues from that region. Compare that to its main rival, Halliburton, which derives 46% of its revenues from North America.

SLB expects to generate $400 million in annual savings by 2027 from eliminating duplicate G&A overheads, reduced operating costs and supply chain optimization.

SLB expects the deal to close in late 2024.

Investor Presentation – SLB ChampionX

Two Houston-area companies get taken over

The number of Houston-area public companies fell by two today as APA completed its acquisition of Callon Petroleum while Kodiak Gas Services closed its deal to buy CSI Compressco. Both acquirers are also based in the Houston-area.



Background to the APA deal

APA (formerly known as Apache) announced its deal for Callon in early January.  The all-stock transaction valued the target at $4.5 billion. Callon is a Permian pure-play with 119,000 net acres in the Delaware Basin and 26,000 acres in the Midland Basin. That dovetails nicely with APA’s Permian basin assets. APA has 84,000 acres in the Delaware Basin and 197,000 in the Midland Basin. The company also has producing assets in Egypt and the North Sea.

APA estimates that they can save $55 million from eliminating duplicate general and administrative expenses and $55 million from operating efficiencies in the Permian.

Callon first had informal merger discussions back in November 2021 with an unidentified publicly-traded E&P operator and continued to have such discussions with various other parties throughout 2022 and 2023.

APA first came into the picture in September 2023 when it engaged financial advisors to review potential transactions. The first contact between the CEOs occurred in October. In the end, APA were competing with another unidentified publicly-traded E&P operator before APA sweetened its proposal on December 29.

SEC filing – 8-K – Completion of Callon acquisition

Background to the Kodiak deal

Kodiak’s $854 million all-stock transaction was announced just before Christmas. CSI was formed in 2000 and went public in 2008. Until January 2021, CSI was effectively controlled by Tetra Technologies, another Houston-area public company. Tetra sold its interest to Spartan Energy Partners, a PE-backed private company, for $30.7 million (plus the elimination of $622 million of net debt).

Ever since Spartan took over, they have been looking to do a deal that would reduce leverage and increase CSI’s scale. It held informal discussions with various parties from January 2021 until September 2023. Kodiak’s CEO initially contacted the CEO of CSI in May 2023 with a view to Kodiak merging into CSI as a pathway for Kodiak to go public.  Instead, Kodiak decided to perform a standalone IPO which it completed in July 2023.

Discussions between the parties paused while Kodiak went through its first quarter as a public company, but began again in September 2023. The deal wasn’t announced until December primarily because the advisors took awhile to figure out the most efficient structure to minimize the tax issues surrounding the CSI partnership.

SEC filing – 8-K – Completion of CSI acquisition

You can see the complete list of Houston-area public companies here.

 

 

Innovex abandons IPO to merge with Dril-Quip

Dril-Quip, a publicly-traded company, is to merge with PE-backed Innovex. Both companies are in oilfield services, and both have their head office in Houston.



It is an all-stock transaction with Dril-Quip shareholders owning 52% of the combined company. However, the company will be renamed Innovex International and the Innovex CEO and CFO will hold those roles in the combined company. Innovex had filed to go public in January 2024.

Dril-Quip has a market capitalization of $825 million and revenues of $478 million and adjusted EBITDA of $59 million. Innovex has revenues of $556 million and adjusted EBITDA of $132 million.

Complementary overlap of products

Dril-Quip was formed in 1981 and went public in 1997. It started out producing oilfield equipment to be used offshore (either subsea or on offshore platforms). In 2023, it purchased a Canadian wellhead business for $80 million to increase its onshore presence.

Innovex was formed in 2016 through the merger of three oilfield service companies that were separately owned by Intervale Capital. The companies were primarily involved in downhole tools and products, mostly onshore. Innovex has made a number of acquisitions since to increase its offshore and international presence. Intervale renamed itself to Amberjack Capital Partners in 2021.

Dril-Quip has its corporate office in NW Houston while Innovex is based in Humble. The company expects to achieve $30 million in synergy cost savings through removing duplicate corporate functions, manufacturing optimization and supply chain savings.

The new management

Adam Anderson will be the CEO of the combined business. He was the CEO of one of the three companies that merged to form Innovex. Kendal Reed, CFO of Innovex since 2019, will be CFO of the combined business. Prior to joining Innovex, he worked at Amberjack, the PE-firm and Piper Sandler investment bank.

Dril-Quip Executive Payout

Dril-Quip CEO Jeff Bird and CFO Kyle McClure don’t have roles in the combined business and will receive large payments following the change of control. The annual proxy statement for 2023 has not yet been released. According to the proxy filed for 2022, Mr. Bird would have been paid a package worth $10.2 million (assuming a termination date of December 31, 2022). For Mr. McClure, the equivalent figure was $4.8 million.

The deal is expected to close in the third quarter.

Investor Presentation – Dril-Quip Innovex

 

SEC charges 17 individuals in $300m Crypto Ponzi scheme

The SEC has charged 17 individuals with running a $300 million Crypto Ponzi Scheme that targeted the Latino community. The company involved, CryptoFX LLC, and many of the individuals are based in Houston.



The individuals behind CryptoFX are Maurico Chavez and Giorgio Benevenuto. Chavez founded the company in 2020, while Benevenuto assisted Chavez in operating it. The SEC filed an emergency action to halt the scheme in September 2022. They appointed a Receiver over the company and the assets of Chavez and Beneventuo.

The Receiver reported that the company had raised at least $300,000 from over 40,000 predominantly Latino investors across the US. CryptoFX’s market trading generated only $2.6 million in trading profits.

The Founders

Chavez and Benevenuto are not charged in this indictment as they already settled with the SEC in 2023. They agreed to pay back their ill-gotten gains with interest, and a civil penalty. The SEC will determine the amounts later.

In the complaint against Chavez and Benevenuto, the SEC alleged that they diverted $8 million of investor funds to a real estate development company that they owned. The SEC also allege that they diverted a further $6.4 million to homebuilders and related professional companies for the purchase and development of multiple properties. In addition, Chavez is alleged to have spent $1.4 million on personal spending, including $181,996 for his stay at the luxury Post Oak Hotel.

The current Defendants

The current SEC complaint alleges that, from May 2020 to October 2022, the 17 individuals from Texas, California, Louisiana, Illinois and Florida, acted as leaders of the CryptoFX network. They solicited investors by promising returns ranging from 15% to 100%. Instead of placing investor funds into a trading program, CryptoFX and the defendants mostly used the funds to pay returns to existing investors.

CryptoFX operated a commission structure where the defendants got a 7% commission on all investments they brought in, plus 3% of all funds solicited by their first-tier investors.

Combined, the 17 defendants earned nearly $5.2 million from commissions from the scheme. Ismael Zarco Sanchez, of Conroe, earned $2.1 million, while four others earned over $400,000 each.

Sanchez is alleged to have told an investor to wire his investment of $260,000 directly to Chicago Title of Texas. Sanchez was in the process of buying a house in Conroe for $1 million.

Two of the individuals, who earned a combined $62,000 have already agreed to settle with the SEC.

https://www.sec.gov/news/press-release/2024-35