Tag Archives: M&A

Shell to acquire rest of Shell Midstream in $1.9 billion transaction

Shell has agreed to acquire all of the common units of Shell Midstream Partners it did not already own for $15.85 a unit, in cash. The transaction is worth $1.9 billion. Shell currently owns 68.5% of the common units.

Back in February, Shell had offered $12.89 for each common unit in a zero-premium bid.

Many years ago, Master Limited Partnerships were in vogue and it was the fashion for E&P companies to spin off their midstream assets into publicly-traded MLPs. Shell were fashionably late in that they only spun off Shell Midstream for $23 per unit in October 2014, right before the crude oil price crash.

That crash laid bare the claim that MLPs had low risks and therefore low cost of capital. In addition, the tax rules changed in 2018 reducing the benefits of MLPs. Most publicly-traded MLPs have already been taken private by their sponsor. Why pay a dividend of 8% on a MLP when you can bring it inhouse by borrowing at 5%?

The transaction has been approved by the Conflicts Committee but most minority investors remain unhappy as they believe that the deal undervalues the company, particularly as some of the midstream assets were damaged by Hurricane Ida in 2021.

The transaction is expected to close in the fourth quarter of 2022.

SEC filing – Shell to acquire Shell Midstream Partners

Sharps Compliance to be taken private for $170 million

Sharps Compliance, a waste management company is to be taken private by Aurora Capital Partners. The PE firm offered $8.75 per share, which valued the company at $170 million.

The company handles medical, pharmaceutical and hazardous waste for small to mid-size companies such as pharmacies, dentist offices and nursing homes. The company went public in 2009 and has its head office is just south of NRG Stadium.

It grew rapidly during the pandemic, but revenues has since flattened out. Interestingly, the company has changed both its CEO and CFO this year. Patrick Malloy was appointed the new CEO in April 2022. He replaced David Tusa who had been the CEO since 2010.

In February 2022, Eric Bauer was appointed CFO, replacing Diana Diaz, who stayed with the company as Chief Accounting Officer. Prior to joining Sharps, Mr. Bauer was CFO at another Houston public company, Nuverra Environmental Solutions.

The acquisition came about after Andrew Wilson, a partner at Aurora, placed an unsolicited telephone call to Patrick Malloy, congratulating him on his appointment as the new CEO. Mr. Wilson and Mr. Malloy met a week later, at which time Mr. Wilson expressed a high level preliminary interest in acquiring the company. (Aurora already owns Curtis Bay Medical Waste Services).

Sharps had retained Raymond James in August 2021 to assist the company in seeking acquisitions and they were able to pivot quickly to negotiate with Aurora and assess the merits of the offer.

The offer price of $8.75 represents a premium of 207% over the $2.85 per share price as of July 11, the last day before the announcement of the merger. This time last year, the stock was trading between $9 and $10 per share.

SEC filing – Sharps Compliance – Aurora

Sugar Land petrochemical company taken private for $247 million

The company manufactures specialty petrochemical products and waxes from its two plants in Silsbee, TX (30 miles north of Beaumont) and Pasadena, TX. It has revenues of $300 million.

The company was originally formed in 1967 as the Arabian Shield Development Company. The company’s original intent was to develop a copper and zinc mine in southwestern Saudi Arabia. It went public in 1972 and continued to raise funds to develop the mine.



In 1987, the company made its first acquisition in the US by buying the facility in Silsbee. By 2006, the company hived off the Saudi mine into a joint venture as it realized it would cost more than anticipated to complete it. The mine eventually started commercial production in 2012.

In 2015, the company changed its name to Trecora Resources. Its sold its 33% stake in the mine JV in 2019 for $70 million.

In late 2020, the company, with the help of its adviser, Guggenheim Securities, began exploring a merger-of-equals transaction in which Trecora would be the acquiror. However, in late summer 2021, after spending nearly $5 million in fees, the Board pulled out of the proposed transaction.

Also, in 2021, two separate activist shareholders, not acting in concert, amassed a combined 20% stake in the company. Both were critical of the Board and management’s strategy for the company. Both believed the company should put itself up for sale.

The company did just that in October 2021. It contacted 72 financial and strategic acquirers. After a formal bidding process, Balmoral won out, paying 11.4 times 2021 adjusted EBITDA.

All the officers of the company are staying on in their roles.

[06-30-22 – UPDATE Trecora filed an 8-K with the SEC.  CEO Patrick Quarles has left the company to be replaced by new hire, Brad Crocker, who is currently the CEO of another portfolio company of Balmoral.  Mr. Quarles will get a golden parachute payment of cash and equity worth $4.4 million.]

SEC filing – Trecora taken private

US Well Services to be acquired by ProFrac

US Well Services Nyx Clean Fleet® Frac Unit – patented PowerCube delivers true redundancy power to two separate electric motors and pumps.

US Well Services has agreed to be taken over by ProFrac in an all-stock deal that values the equity at around $93 million.

USWS, based in the Galleria, was founded in 2012 and was taken public for $274 million by a SPAC in November 2018. It currently operates five electric frac fleets and one diesel unit.



USWS also has about $265 million in debt. This includes $110 million of convertible loan notes. As part of the deal, ProFrac will issue stock worth $177 million to eliminate these notes. ProFrac also intends to refinance the remaining long-term debt.

Just last month, USWS announced leadership changes that resulted in Kyle O’Neil being promoted from CFO to CEO.

ProFrac just went public in May 2022 via a $288 million IPO. It has its head office in Willow Park, west of Fort Worth.  With the acquisition, ProFrac will leapfrog Liberty Oilfield and Nextier become the second largest pressure pumper by horsepower, behind only Halliburton.

ProFrac was founded by the Dan and Farris Wilks in 2016. Prior to that, they created Frac Tech in 2002 which the brothers sold in 2011 for $3.5 billion. Dan and Farris are not on the Board of ProFrac. However, Matt, son of Dan, is Executive Chairman, while Ladd, son of Farris, is CEO.

ProFrac, through an affiliate, already owned 13% of USWS. It acquired its stake in 2021. At the same time, ProFrac also paid $22.5 million to USWS for licenses to build three electric frac fleets. Under that agreement ProFrac also expected to pay USWS $22.5 million a year, over the next four years, for additional licenses. With the acquisition of USWS, ProFrac will no longer have to pay those additional fees.

ProFrac also expects to generate $35 million in synergies in 2023. $13 million of this will come from the elimination of duplicate corporate and field overheads, while $12 million will result from reduced repair and maintenance costs (primarily by using in-house manufacturing facilities). $5 million each will arise from supply chain synergies and reduced maintenance capex.

ProFrac also owns 23% of Flotek Industries, another struggling Houston oilfield services company.  In addition, companies affiliated with the Wilks brothers also own 7% of Nextier and 9% of ProPetro Holdings, another pressure pumper. They also took Carbo Ceramics private in March 2020.

The deal for USWS is expected to close in the fourth quarter.

Investor Presentation

Houston healthcare company goes public via reverse takeover

Nutex Health, a Houston-based operator of micro-hospitals, has gone public via a reverse takeover with Florida-based Clinigence Holdings.



Nutex owns and operates 14 facilities, with another 17 under construction. The hospitals offer emergency room care, inpatient care and behavioral health services. Most of the hospitals have less than 10 beds. Some of the hospitals are 100% owned by Nutex. Others are partly owned by physicians who provide services at that hospital.

Nutex was founded in 2011 by Chairman and CEO Tom Vo, M.D. The company has its head office in the Galleria area. It plans to open 100 micro-hospitals across the USA.

Clinigence started out as a healthcare information technology company. However, in early 2021, it pivoted to acquire AHP Health Management Services, which provides care for 22,000 patients in Los Angeles, though a network of 141 primary care physicians and 660 specialists.  AHP receives a fee per member, per month. Its shares were traded over-the-counter, but following the merger, the shares now trade on Nasdaq.

Nutex is forecasting revenues of $366 million for 2022 and an adjusted EBITDA of $201 million. In the merger it was valued $1.6 billion.

The CFO of the company will be Mike Bowen. He is based in Florida and has been the CFO of Accountable Healthcare America (AHA) since 2014. AHA, a medical management platform company, was acquired by Clinigence the same day it acquired AHP.

SEC filing – Nutex Health merger

E&P companies to combine in $6 billion transaction

[UPDATE 07-07-22 The deal has now been completed. Combined group is now called Chord Energy].

Two E&P companies, Oasis Petroleum and Whiting Petroleum are merging in a $6 billion deal, including debt. Oasis is based in downtown Houston, while Whiting has its head office in Denver. The combined company will have its head office in Houston and will have a new, yet-to-be-determined name. The Denver office will remain open for the foreseeable future.



Both companies have their main operations in the Williston Basin of North Dakota, Montana and Saskatchewan. (The Bakken is the main oil-producing rock formation of the Basin, but there are others). In terms of acreage, the deal combines the number 3 and 4 players into the largest operator in the Basin, ahead of Continental Resources and ConocoPhillips.

Both companies filed for pre-packaged bankruptcies in 2020. Whiting filed first, in April 2020 and exited in September 2020, having converted $2.4 billion of debt into equity. Likewise, Oasis filed in September 2020 and exited three months later. It converted $1.9 million of debt into equity.

After exiting bankruptcy, Oasis sold its Permian Basin acreage for more than $400 million and bought assets in the Williston Basin from Diamondback Energy for $745 million.

Management

Both companies have CEOs who were appointed after exiting Chapter 11. Lynn Peterson, the CEO of Whiting, was appointed in September 2020. He will become Chairman of the combined company. Danny Brown, CEO of Oasis, joined in April 2021. Previously, he was head of US onshore operations for Anadarko. Mr. Brown will be the CEO of the combined company.

Longtime Oasis CFO Michael Lou will be the CFO of the combined company.

Transaction structure

The deal is a combined stock and cash deal. Oasis is the surviving entity and its shareholders will get a special dividend of $15 a share. Whiting shareholders will get 0.5774 shares of Oasis and $6.25 in cash for each share of Whiting they own. Once the deal closes later this year, Whiting shareholders will own about 53% of the combined company.

The company expects to achieve savings of $65 million by the end of 2023. $30 million will come from administrative savings, the rest will come from operational cost synergies.

Oasis – Whiting Investor Presentation

Exterran Corporation to be acquired for $735 million

Houston-based Exterran Corporation has agreed to be bought by Enerflex in an all-stock transaction that values the company at $735 million.



The contract combines two businesses that are primarily involved in natural gas processing and compression services, including manufacturing, service and contract operations.

Enerflex shareholders will own approximately 73% of the combined business which will continue to be run from Calgary by the Enerflex management team.

The predecessor business to Exterran was formed in 1954 as South Coast Gas Company and later operated as Hanover Compressor Company and Universal Compression. In 2007, these two businesses merged to form Exterran Holdings. In 2015, the manufacturing and international compression businesses were spun off. The spin off was named Exterran Corporation, while the US compression business was renamed Archrock.

At the time of the spin-off, Exterran shares traded at $18. Before the takeover announcement, the stock was trading at $3. The company has struggled in recent years as E&P operators cut back on capital expenditures and the company was burdened with $525 million of debt at spin-off.

Enerflex expects to achieve $40 million of annualized savings. $35 million will come from restructuring the management and corporate support teams.

Assuming the Exterran management leave after the deal closes (expected in Q2 or Q3 this year) they will receive large payouts. CEO Andrew Way is in line for a cash severance of $6.1 million (3x base plus 3x  target bonus). Accelerated vesting of options will be worth another $3.3 million.

CFO David Barta will receive $1.9 million in cash severance (2x base plus 2x target bonus). His options will be worth $0.7 million.

https://www.enerflex.com/uploads/Presentations/Investor-Presentation-Enerflex-to-Acquire-Exterran.pdf

Diamond Offshore fails to attract satisfactory takeover offers

Diamond Offshore will remain independent after failing to attract any satisfactory takeover offers. The company had put itself up-for-sale back in August and hired Goldman Sachs as its financial advisor.



The offshore driller owns four drillships and nine semisubmersibles. It exited bankruptcy in April 2021, having converted $2 billion of debt into equity. Its stock is not currently publicly-traded.

As part of the sale process, the company approached four offshore drilling companies that had sufficient scale to acquire Diamond and were not in bankruptcy (isn’t that all of them?).

  • Company A submitted an indicative offer that was deemed inadequate. When asked to raise their bid, they walked away.
  • Companies B, C and D submitted indicative bids that were deemed worthy of further engagement. After commencing limited due diligence, companies B and C backed out.
  • In November, in light of various communications from Company D, the independent committee appointed by Diamond decided it would cease discussions with Company D.

Litigation with largest shareholder

Interestingly, back in July, Avenue Capital Management, a hedge fund that is the largest shareholder of Diamond with a 17% shareholding, sued the company. It was trying to force the company to hold an annual meeting, at which Avenue would put forward its own nominees for directors. The company and Avenue settled the lawsuit in August. As part of the settlement, the company disclosed details of the proposed takeover offers to Avenue.

In November 2021, Avenue delivered to the company a purported list of nominees for the next annual meeting. The company notified Avenue that the nominations were invalid because they were not in accordance with the bylaws. After a second settlement agreement with Avenue in December, the litigation and the nominees proposed by Avenue were withdrawn.

AGM in January

An annual meeting of stockholders will now take place on January 21,2022. There are three directors up for re-election, namely;

  • Adam Peakes – former CFO at Noble
  • Patrick Lowe – former COO at Ensco (now part of Valaris)
  • John Hollowell – former CEO of Shell Midstream.

All three were part of the four-person independent committee that was set up to explore strategic alternatives.

SEC filing – Diamond Offshore takeover discussions

 

 

BP Midstream Partners to be acquired by its former parent

BP Midstream Partners (BPMP), based in west Houston, is to be re-acquired by its parent, BP, in an all-stock transaction. Each unitholder will receive 0.575 of an American Depositary Share of BP for each public common unit owned. At the current price of the ADRs, that amounts to $14.89 per unit

Back in August, BP offered to buy BPMP common units at $13.01 per unit. BP currently owns 54.4% of the outstanding BPMP units.

BPMP owns the pipelines and other midstream assets that service BP’s Gulf of Mexico’s fields as well as the pipelines around the Whiting refinery in Indiana.

BP Midstream was spun off by BP only in October 2017 at $18 per unit. That was a few years later than many of its competitors. In fact, the trend to re-acquire them started shortly thereafter in 2018.

The deal is expected to close in the first quarter of 2022.

SEC filing – BP to acquire BPMP

 

 

Houston robotics company to be taken public by SPAC

Nauticus Robotics, a Houston-based marine robotics company, is to be taken public by a CleanTech Acquisition Corp, a SPAC (Special Purpose Acquisition Corporation). The deal values Nauticus at $377 million enterprise value. CleanTech completed its $150 million IPO in July 2021.



Until recently, the company was called Houston Mechatronics. It was founded in 2014 by Nicholaus Radford, who previously worked at NASA and Oceaneering. The company has its head office in Webster, two miles from the NASA Johnson Space Center and employs about 25 former NASA robot engineers . Existing investors in the business include Schlumberger and Transocean. Angie Berka, the Director of Finance and Administration, is also a shareholder.

Currently, manned service vessels are used to service the offshore energy sectors. Nauticus is developing tetherless, autonomous electric-powered robots that can be controlled by staff onshore. The company plans to rent out its Aquanaut robot for $25,000-$50,000 a day, less than half the cost of a deepwater rig.

Nauticus also believes the technology can be used for other industries and applications such as ports (to monitor ship traffic), aquaculture (fish farming), offshore wind and data centers, and defence.

For 2021, the company has revenues of $8 million. This is projected to grow to $90 million in 2023 (4x enterprise value) and $202 million by 2024.

Existing shareholders including Schlumberger and Transocean are rolling over their shares. After the deal closes (expected in the second quarter of 2022) the company will have $222 million of cash on hand. $50 million of this will be used to execute the business plan, the rest will be placed in trust for future growth opportunities, including acquisitions.

SEC filing – 8-K