Tag Archives: M&A

KLX Energy Services and Quintana complete merger

Photo by Joshua Doubek

The merger between two publicly-traded oilfield service companies, Quintana Energy Services (QES) and KLX Energy Services (KLXE), has been completed. The all-stock deal was first announced in May 2020.

KLXE is based in Florida while QES’s head office is in downtown Houston. KLXE is a leading provider of completion, intervention and production services. QES’s primary services include directional drilling, snubbing, coiled tubing, wireline services and pressure pumping.



The merger allows the companies to rationalize their fleets of coiled tubing and wireline assets. Before the merger was announced, QES had decided to repurpose its recently-idled pressure pumping units to support its coiled tubing fleet. The merger helps that objective.

The combined company takes the KLX Energy name and keeps the KLXE ticker symbol. However, the head office will remain in Houston.

Consideration

The combined company had proforma revenues for the three months ended April 30, 2020 of $176 million and an operating loss before impairment of $36.5 million. KLXE shareholders got 59% of the combined company, QES 41%. The preliminary valuation of the QES equity at March 31 was $46.9 million, considerably below its net asset value of $112.9 million.

According to the merger proxy statement, QES has long held the view that consolidation in the oilfield services sector was necessary. They identified KLXE as a possible merger partner in the fall of 2019. At that time QES was in discussions to acquire another unnamed company. They first approached KLXE in March 2020.

Management of combined company

Interestingly, QES initially suggested that then-CEO of KLXE, Amin Khoury and Thomas McCaffrey, then CFO of KLXE take the same roles in the combined company for one year. After that, QES CEO Chris Baker and QES CFO Keefer Lehner would take the top jobs.  Unfortunately, Mr Khoury had to resign suddenly in April for personal family health reasons. Mr McCaffrey was appointed CEO of KLXE.

As a result, Mr Baker immediately became the CEO of the combined group and Mr Lehner the CFO. To alleviate possible concerns of the KLXE shareholders Mr McCaffrey has been appointed to the combined Board and will chair the integration committee.

The company expects to generate $40 million in synergies. This will primarily be achieved by  rationalizing the Florida corporate office and the combining the KLXE and QES Houston-area locations. There’s also some overlap of field offices.

 

NRG to buy Houston-based Direct Energy

NRG has agreed to buy Houston-based Direct Energy from Centrica for $3.6 billion in cash. The company expects to save $300 million in synergies, much of it from the elimination of duplicate headquarters and back office functions.

NRG is an integrated power company that has its head office in New Jersey. It has an operational head office in Houston as most of its retail revenues are in Texas. Its generating capacity is split more evenly between Texas, New York, Connecticut, Illinois and California.



Direct Energy was acquired by UK-based Centrica in 2000 for $912 million. At that time, Centrica (formerly a nationalized company called British Gas) was looking to grow internationally. Through Direct Energy, it subsequently acquired Clockwork, a home services franchise platform that operated brands such as One Hour Heating & Air Conditioning, Benjamin Franklin Plumbing and Mister Sparky Electric.

In recent years, Centrica has been losing market share in its home market. This forced it to retreat from its international operations. It sold Clockwork last year for $300 million.

When Direct Energy was acquired, its head office was in Toronto, Ontario.  The head office moved to Houston in 2012. It is one of the largest retail providers of electricity, with customers in all 50 states. The acquisition allows NRG to diversify its retail customer base.

NRG expects to achieve $300 million in synergies by 2023 while spending $220 million in one-off costs to do that. It doesn’t quantify how it gets to the $300 million but does state that there will be ‘facility savings with significant employee geographic overlap, co-loaded headquarters and branch offfices’.

The transaction is expected to close by the year end.

https://investors.nrg.com/events/event-details/business-update-call

 

 

Chevron to acquire Noble Energy for $5 billion

Chevron has agreed to buy Houston-based Noble Energy for $5 billion in an all-stock deal. The price is $10.38 per share. Including debt, the deal values Noble at $13 billion.

The price represents a premium of nearly 8% over the closing price on Friday. However it is considerably lower than the 52-week high of $27.31.



Noble’s primary assets are in the Eastern Mediterranean sea (Israel and Cyprus).  These will fit well with Chevron’s assets in Egypt. Noble also has 92,000 contiguous net acres in the Permian which are next to Chevron’s acreage. Noble also has 336,000 of net acres in the DJ Basin in Colorado. This would be a new onshore basin for Chevron.

Chevron will also acquire Noble’s 63% stake in publicly-traded Noble Midstream Partners.

Chevron expects to generate annualized operating and cost synergies of $300 million, though there were no details of how this is broken out.

The deal represents the first major acquisition by Chevron since it decided not to get into a bidding war with Occidental last year for Anadarko. Chevron did, however, walk away with a $1 billion termination fee from that contest.

Severance payments

The executive management of Noble will receive large payments if they are terminated becasue of a change of control. Chairman and CEO David Stover will receive a severance payment of $8.2 million, representing 2.99 times base salary and target annual bonus. He will also get close to $10 million in pro-rated bonuses and stock that vests. Likewise COO Brent Smolik will get a $4 million cash severance and another $5 million in pro-rated bonuses and stock vesting. The figures for CFO Ken Fisher are $1.2 million and close to $3 million, respectively.

The deal is expected to close in the fourth quarter of 2020.

SEC filing – Chevron to acquire Noble Energy

 

Tilman Fertitta blank check company to buy business from Tilman Fertitta

Landcadia Holdings II, the blank check company that went public in May 2019, has agreed to buy Golden Nugget Online Gaming (GNOG) from Landry’s, the restaurant and casino business owned by Tilman Fertitta.

After the IPO, Mr Fertitta still owns 21% of Landcadia II. Jefferies, the financial backer, owns 10%.



The transaction will result in a combined enterprise value of $745 million, which is approximately 6.1 times estimated 2021 revenues of $122 million. Landcadia II is paying $30 million in cash and issuing equity worth $314 million. In addition, the buyer is paying down $150 million of debt of GNOG, plus related prepayment fees ($24 million) and transaction fees ($30 million).

GNOG currently pays its parent company a 3% royalty rate on net gaming revenue and will continue to do so, even after it is acquired by Landcadia II.

Currently GNOG is involved in online casino gaming in New Jersey, where it has a 13% market share. It is planning to expand into Pennsylvania and Michigan, where online betting is now legal. It is not planning to enter the sports betting market, where DraftKings is dominant.

DraftKings recently went public and has projected revenues in 2021 of $733 million. It has an enterprise value of over $11 billion. The pandemic has led to an increase in online betting and gaming and a rise in valuation of companies involved in that business.

The transaction helps divert cash to the struggling Landry’s business. The business operates many restaurant chains including Saltgrass Steak House, and Bubba Gump Shrimp. It also owns 5 Golden Nugget casinos. Understandably, the businesses have been hard hit by the economic downturn caused by COVID-19 and furloughed 45,000 employees at the peak.

The transaction is expected to close in the third quarter. Afterwards, the company will be renamed Golden Nugget Online Gaming and will change its Nasdaq trading symbol to GNOG.

Landcadia I, the first blank check company formed by Mr Fertitta, acquired Waitr in November 2018, an online food ordering and delivery service. It’s had a rough time since them (3 CEOs and 3 CFOs!) but business has picked up a bit during the pandemic.

SEC filing – Landcadia to buy GNOG

Houston helicopter companies complete merger

ERA and Bristow, have completed their all-stock merger. The deal was first announced in January 2020.

Both companies have their head office in west Houston and both were publicly traded until Bristow filed for bankruptcy in May 2019. The combined company will keep the Bristow name but will now trade under a new ticker symbol ‘VTOL’.



The combined group

For the year ended March 2020, Bristow had revenues of $1.2 billion and ERA $232 million. Bristow shareholders own 77% of the combined company, ERA shareholders 23 %. Technically, Bristow acquired ERA for a preliminary purchase price of $108 million. The net assets acquired were $175 million, resulted in a gain on bargain purchase of $67 million.

Since 2015, from time to time, the companies held informal discussions about a business combination. However, the bondholders who took control of Bristow in the bankruptcy reorganization really pushed the Bristow management for a merger.

The merger is expected to result in annualized cost savings of at least $35 million through the elimination of duplicate corporate expenses and greater operational efficiencies.

Management team

ERA CEO Chris Bradshaw becomes CEO of the combined group. David Stepanek, who was Senior VP of Business Development at ERA, becomes COO.  Jennifer Whalen, the CFO of ERA becomes the interim CFO. A permanent CFO will be named at a future date.

Don Miller, CEO of legacy Bristow and Brian Allman, CFO of legacy Bristow, were not named in new management team. I presume they have left the company, though that has not been explicitly stated in any SEC filings by the company.

Severance

Mr Miller will receive a cash payment of almost $3 million comprising 2x base salary ($1.4 million), target annual bonus ($0.8 million) and an incentive bonus of $750,000. Mr Allman will receive a cash payment of $1.1 million.

As a reminder, Mr Miller, who was only promoted from CFO to CEO in March 2019, got a $945,000 cash retention bonus in May 2019 and was eligible for cash bonuses (annual target $942,000). For Mr Allman, who was the Chief Accounting Officer before being promoted to CFO, the retention bonus was $400,000.

SEC filing – Bristow ERA merger completed

Houston Oilfield services merger completed

Apergy Corporation, based in The Woodlands, has completed its merger with the upstream division (aka Nalco Champion) of Ecolab. The deal was announced in December 2019. The combined company has been renamed ‘ChampionX’ and will have the ticker symbol ‘CHX’.



Apergy was spun off from Dover Corporation in May 2018 and is primarily involved in Artificial Lift.  Ecolab, based in Minnesota, had originally announced in February 2019 that it intended to spin off Champion through an initial public offering. Champion primarily manufactures oilfield chemicals and has its head office in Sugar Land.

The new management includes:

  • CEO Soma Somasundaram (former Apergy CEO)
  • CFO Jay Nutt (former Apergy CFO)
  • COO Deric Bryant (former EVP of Ecolab’s Upstream business)
  • Chief Accounting Officer Antoine Marcos (former Senior VP Finance Nalco Champion).

The merger was a “Reverse Morris Trust’ transaction whereby Nalco Champion was spun off to Ecolab’s shareholders and simultaneously merged with Apergy. The transaction is tax-free for both sets of shareholders. The Champion shareholders hold 62% of the combined company, Apergy 38%.

At the time the deal was announced, it was expected that Apergy would issue 127 million shares (at $30.67, the price in December) to Ecolab shareholders and assume debt of $492 million. That valued Champion at $4.4 billion. By the time the deal closed, Apergy’s share price had fallen to $10.34 which drops to the valuation to $1.8 billion.

The investment in Champion X is sitting on the books of Ecolab at $3.7 billion. From expecting a gain, they will now book a large loss. It would have been much worse if Apergy’s stock price had not rallied from a low of $3.02 in late March.

SEC filing – Apergy Champion merger

Oilfield Services merger falls apart

Photo by Joshua Doubek

Superior Energy Services has announced that the merger of its US completions business with Forbes Energy Services is off.



The deal was originally announced in December 2019. The plan was to combine the entities in an all-stock transaction and then spin it off into a publicly-traded company. At the time of the merger announcement the Newco was projected to have proforma revenues of $831 million and adjusted EBITDA of $77 million.

Refinancing as part of the merger

Superior said that the rapidly declining demand for oilfield services made it impractical to complete this transaction. In addition the transaction was also dependent on refinancing $500 million of Superior’s debt that is due in 2021. The downturn made that more difficult.

The original agreement stated that Superior would pay a $5 million break-up fee to Forbes in the event the merger didn’t happen. The agreement has been revised so that there will be no break-up paid by either side.

Delisting notice

Superior’s stock price is trading at 99 cents. On March 30, the company received a non-compliance notice from the NYSE because its market capitalization and stockholders’ equity were both below $50 million. Normally the company would have six months to regain compliance. However, due to the volatility in the financial markets caused by COVID-19, the NYSE is permitting 18 month cure period.

Ransomware attack

Adding to the problems that the company faced, on April 28, the company announced it would have to delay filing its quarterly report for Q1 (originally due by May 11). The company said this was due to disruptions caused by COVID-19 which resulted in stay home orders and office closures.

The company finally filed its 10-Q on May 21. In the filing it disclosed, that on March 31, 2020, it had been subject to a ransomware attack that temporarily disrupted access to some systems.

Superior 10-Q filing

 

Houston oilfield services company to merge

Houston-based Quintana Energy Services (ticker QES) has agreed to merge with KLX Energy Services (KLXE) in an all-stock transaction.

QES operates in four segments: Directional Drilling, Pressure Pumping, Pressure Control and Wireline. KLXE primarily operates in completion, intervention and production services.



KLXE was formed from the combination and integration of seven private oilfield service acquired between 2013 and 2014. It was spun out of its parent company, KLX Inc, into a separate public company in September 2018.

KLXE shareholders will hold approximately 59% of the combined company, QES 41%. The combined company will retain the KLX name and ticker. However, the corporate offices will remain in Houston.

Christopher Baker, the current CEO of QES, will become the CEO of the combined group. Likewise, Keefer Lehner, the CFO of QES, takes the top financial position.

On a proforma basis, the company would have combined 2019 revenues of $1 billion and $146 million of adjusted EBITDA, after an estimated $40 million in annualized cost synergies. More than half of that will come from the rationalization of KLXE’s Florida headquarters.

The enterprise value of KLX is $146 million, while that of QES is $63 million. KLXE shares are trading just above $1, while QES received a listing warning from NYSE last week because its share price had been trading below $1 for 30 days.

The transaction is expected to close in the second half of 2020.

KLX Investor Presentation

 

Small Houston-based E&P company agrees to reverse takeover

Camber Energy (market cap $9 million), has agreed to a reverse takeover of privately-held Viking Energy. Both are E&P companies with their head offices in Houston. Camber is based downtown while Viking is in west Houston.



Currently the agreement is a non-binding letter of intent. The parties aim to sign a definitive agreement by February 17, 2020. Camber will issue shares with the Viking Energy shareholders owning 85% of the combined group post-closing.

Viking owns oil and gas leases in Texas, Louisiana, Mississippi and Kansas. It owns a working interest in 58 conventional producing wells in Texas and Louisiana. The company also has an interest in 30 salt water disposal wells. In October 2019, Viking agreed to buy another 123 wells in Texas and Louisiana for $40 million in cash. That deal has not yet closed and the merger with Camber is contingent on that acquisition closing. [UPDATE 02/06/2020 The deal has now closed for $46.3 million – revised cash flows and reserve information led to the change in price].

Back in July 2019, Camber entered into a merger agreement with Lineal Star Holdings, a private company involved in pipeline construction and integrity services. Camber ended up unwinding the transaction at the end of 2019 because the post-merger combined company was unable to meet the listing standards of the NYSE American.

Camber Energy used to be called Lucas Energy and went public in 2006. It’s had a troubled past. The strangest event was in October 2011 when the then-CEO made an acquisition for $22 million without telling the Board or making it public. The issue only came to light a year later when the seller sued for payment that was due in November 2012.

Viking Energy was the subject of my most bizarre post of 2019. In September 2019, the SEC announced fraud charges against a former CEO for creating a fake CFO.

SEC filing – Camber Viking merger

 

 

Houston helicopter companies to merge in all-stock transaction

ERA Group and Bristow Helicopter have announced that they will merge in an all-stock transaction. Both companies have their head office in west Houston.



ERA is publicly-traded and has a market capitalization of $183 million. Bristow was publicly-traded until it entered Chapter 11 bankruptcy in 2019. The terms of the merger are that existing Bristow shareholders will get 77% of the combined company, while ERA shareholders will get 23%. The combined company will be renamed Bristow.

ERA CEO Chris Bradshaw will become the CEO. However, the rest of the management team will be named later. The current CFO of ERA is Jennifer Whalen, who has been in that role since June 2017. For Bristow, it is Brian Allman who was promoted to the role in March 2019. Mr Allman replaced Don Miller who was promoted to the CEO role of Bristow. No word yet on what role Mr Miller will have post-merger.

The companies expect to achieve $35 million in cost savings through the elimination of duplicate corporate expenses and the optimization of aircraft maintenance and fleet utilization.

Bristow filed for bankruptcy in May 2019 and exited in October. Existing shareholders were wiped out and the bondholders took over the company.  Debts of $1.7 billion were reduced by $900 million. The filing was somewhat controversial as some shareholders argued that Bristow should not have been put into bankruptcy as the equity still had value.

The transaction is expected to close in the second half of 2020. If shareholders of one of the companies votes down the deal, there will be a $9 million break-up payable to the other party.

SEC filing – ERA – Bristow merger