Tag Archives: M&A

Houston publicly-traded shell company makes large acquisition

Synthesis Energy Systems, essentially a publicly-traded shell company based in the Galleria area, has agreed to buy Australian Future Energy. The acquisition is an all-stock stock deal that values AFE at $36 million. SES currently owns 36% of AFE.



SES owns proprietary technology that produces synthesis gas from the burning of low-grade coal and using that gas as an input in the production of chemicals such as methanol or ammonia. In the current environment of relatively low oil prices and abundant natural gas, the technology is not able to compete economically.  In its last published quarterly results, the company had zero revenue and shareholders’ equity of $1.3 million.

AFE plans to acquire Australian energy resources such as coal and biomass so that it can produce synthesis gas.

To pay for the acquisition, the company is issuing 3.875 million shares at $6 each. It’s not clear how SES values AFE at $36 million. In its last quarterly results for the three months ending March 31, 2019, SES carried its 36% investment at zero. It also stated that AFE had a net loss of $245,000 for the nine months ending March 31, 2019 and that AFE had total equity of $542,000.

Prior to the announcement of the deal, the share of SES were trading at $1.80. Post market-close on Friday they were trading at $7.50. That would give the company a market capitalization of $10 million.

Earlier this year, SES had agreed to sell its gasification technology to AFE for $5.8 million in cash and 1 million shares in AFE. SES would have kept ownership rights for the technology in China. However the deal collapsed in September.

After the deal closes in 2020, Mr Kerry Packer, current CEO of AFE, will become CEO of SES, and Ron Higson, current COO of AFE, will become COO of SES. David Hiscocks, the Corporate Controller, will stay on but a new CFO will be appointed.

SEC filing – Synthesis Energy Systems

Houston skincare company sells for $845 million

Drunk Elephant has been bought by Shiseido, a Japanese beauty products company, for $845 million.

Tiffany Masterson, a mother of four who lives in the West University area of Houston, founded the company in 2012. She wanted to develop a line of non-toxic skincare products. In her first year of operation, her brother-in-law invested $300,000. The following year, her brother also invested and became President of the company.



Most of the company’s employees and back office functions are based in Newport Beach, California

The brand is now one of the top selling at retailer Sephora. San Francisco PE firm VMG Partners then invested in the business in 2017 and helped grow the brand internationally.

The company has projected revenues of $125 million for 2019. Forbes estimates that Ms Masterson will make $120 million when the deal closes at the end of the year.  She will stay on after the close as the Chief Creative Officer.

https://www.forbes.com/sites/chloesorvino/2019/10/08/hot-skincare-brand-drunk-elephant-sells-for-845-million-minting-founder-a-fortune/#29f315105140

 

 

 

 

Oilfield services company to split into two

TechnipFMC has announced that it will split into two separate publicly-traded companies (currently dubbed SpinCo and RemainCo). This comes less than 3 years after the merger of Technip and FMC in January 2017.



Production v E&C

They are not quite being split in the same way that they came together. The Engineering & Construction arm (primarily the old Technip business) is being spun off from the remaining business that will concentrate on production systems (primarily the old FMC business). However Loading Systems which supplies loading arms for LNG will be part of SpinCo. It was originally part of FMC.

SpinCo will have its head office in Paris and will be listed on the Euronet Paris Exchange. RemainCo will be based in Houston and have listings on the NYSE and the Euronet Paris Exchange.

SpinCo will have revenues of $6 billion and 15,000 employees. RemainCo will have revenues of $7 billion and 22,000 employees. The combined business currently has a market cap of $10 billion.

Failed Synergies

The current CEO, Doug Pferdehirt and current CFO, Maryann Mannen, will transfer to RemainCo. During a conference call today the CEO said;

“There are very few synergies between upstream and downstream. We are seeing the beginning of a shaping of our industry. We believe that what we are creating, others will follow. When you over-integrate, the customer can see you as greedy. We integrate where it clearly adds value to the customer.”

At the time the deal was announced in May 2016, then CEO of Technip, Thierry Pilenko, said;

“We have complementary skills, technologies and capabilities. Together, TechnipFMC can add more value across Subsea, Surface and Onshore/Offshore, enabling us to accelerate our growth.”

Integration costs $231m, Break-up costs ??

The company spent $231 million on integration costs between 2016 and 2018. Since the merger the stock has lost about a third of its value. That’s considerably better than the PHLX Oil Services index that has lost about 66% in that time, but much worse than the S&P 500 that has gained about a third.

I wonder how much it will cost to separate the businesses?

Press release – TechnipFMC split

E&P company now based in Houston after merger

Amplify Energy has completed its merger with Midstates Petroluem in an all-stock merger-of-equals.  The deal was announced back in May.

Midstates was publicly-traded and was based in Tulsa, OK. Now that the Amplify management are running the business, it has its head office in downtown Houston. The publicly-traded entity is now called Amplify Energy.



Amplify Energy is the successor reporting company of Memorial Production Partners, which was publicly-traded until entering Chapter 11 bankruptcy in January 2017. Amplify’s production assets are mainly in East Texas/North Louisiana, the Rockies and California.

Midstates also entered Chapter 11 bankruptcy in April 2016, emerging six months later. The business mainly operates in the Mississippian Lime formation in Oklahoma.

Fir Tree Capital Management, a New York investment firm is the single largest shareholder in both companies. It owns 35% of Amplify and 23% of Midstates. Two executives from Fir Tree are on both boards.

Before the deal was announced, shares were trading at $13. They are currently trading at $4.36 giving the business a market capitalization of $186 million and an enterprise value of $409 million.

The CEO of Amplify is Ken Mariani. He joined in May 2018. Prior to that he was the President at Enervest, a Houston energy investment firm. Martyn Willsher is the CFO. He was appointed to that role a year ago and was previously the Treasurer at Memorial Production Partners.

The management team of Midstates have left the company and received golden parachutes. CEO David Sambrooks received $2.9 million in cash and equity that was worth $2.4 million when the deal was announced but less than $1 million now. Chief Accounting Officer Richard McCullough received $0.7 million in cash and equity now worth $0.2 million.

The list of Houston-area companies can be found here

 

CFO reappointed as reverse takeover is completed

Stabilis Energy has completed its reverse takeover of American Electric Technologies (AETI) that was originally announced in January 2019. Andy Puhala, the CFO of Stabilis, becomes the CFO of the combined group. He was formerly the CFO of AETI between January 2013 and September 2015.



AETI, a provider of power delivery systems to the Energy sector, is based in Bellaire. It sold off its main US business in August 2018, leaving it with just an operation in Brazil and a joint venture in China. Stabilis has acquired the business for $10.2 million

Stabilis Energy is a small-scale producer and distributor of Liquefied Natural Gas (LNG). Small scale facilities typically produce 50,000 to 500,000 gallons a day. The product is usually used within 500 miles of the production facility in locations not near a natural gas pipeline. Stabilis has one facility located between San Antonio and Corpus Christi that produces 120,000 gallons a day.

The company has its head office in west Houston. For the year ended December 2018, the proforma business had revenues of $45 million.

Stabilis is owned by Casey Crenshaw, who has also been a director and shareholder of AETI since 2012. The share exchange agreement will leave the former owners of Stabilis owning 89% of the combined company. Existing AETI shareholders will own the remaining 11%.

Immediately after the transaction was completed, the company received a delisting notice from Nasdaq because it neither has a minimum of 1 million publicly-held shares nor a minimum market value of $15 million for the publicly-held shares. That’s due to Casey Crenshaw owning 88% of the combined company. The company plans a hearing with Nasdaq

The company will now be known as Stabilis Energy Inc and will trade under the ticker symbol ‘SLNG’.

Carrizo management set for large payout in takeover

Callon Petroleum has agreed to buy Carrizo Oil and Gas in a $3.2 billion all-stock deal.

Callon (market cap $1.46 billion) has its head office in west Houston. It has oil and gas properties in the Permian Basin. Carrizo (market cap $971 million) has its head office in downtown Houston and mainly has operations in the Eagle Ford Basin.



Following the close of the transaction, Callon shareholders will own approximately 54% of the combined company, Carrizo shareholders 46%. Post-close, the company will be run by the Callon management team.

Management team payouts

The four members of the Carrizo management team are in line for large payments. According to the recent proxy statement they will get over $21 million as part of any change of control. CEO Chip Johnson will get $7.8 million, COO Brad Fisher and CFO David Pitts $5.2 million each, while General Counsel and VP of Business Development Gerald Morton will get $3.1 million.

The proxy statement also notes that, in February 2019, the Compensation Committee of Carrizo adopted a new Change in Control Severance plan. This changed some of the terms of the plan. While this didn’t significantly affect the payments due to the CEO, it did increase the severance due to the other three executives by about $700,000 each.

Cutting costs to reduce debt burden

Callon expects to generate annual operational synergies of $65 to $80 million and general and administrative savings of $35 to $45 million. The G&A savings amounts to two thirds of Carrizo’s overheads.

Both companies have a lot of debt. Callon has $1.4 billion of debt, and a debt to EBITDA multiple of 2.4x. Carrizo has $1.8 billion of debt, and a similar debt to EBITDA multiple. Neither company is generating positive free cash.

Dismal shareholder returns

Carrizo is selling for $13.12 a share. However, just last August, the company priced a public offering of 9.5 million common stock at $23 per share. In June 2014, the company had a share price of $69 and a market cap of over $3 billion.

According to Bloomberg, over the past five years, Carrizo shareholder returns have been negative 84% (compared to the sector average of negative 64%). Callon’s return has been negative 41%. Meanwhile the S&P 500 has returned a positive 69% in the same time period.

The transaction is expected to close in the fourth quarter. If the deal doesn’t close, termination fees may be payable (Callon to Carrizo $57 million, Carrizo to Callon $47 million).

https://www.prnewswire.com/news-releases/callon-to-acquire-carrizo-in-all-stock-transaction-300884540.html

 

 

Short-lived Houston public company agrees to takeover

NRC Group Holdings, a waste management company, has agreed to be acquired by US Ecology, an Idaho company, in an all-stock deal with an enterprise value of $966 million.

NRC has its head office in west Houston. It went public in October 2018 as part of a reverse takeover of a Hennessy Capital, a blank check company. NRC itself was established in June 2018 through a combination of two businesses, JFL-NRC Holdings (based in New York) and Sprint Energy Services (based in Houston). Both the companies were affiliates of PE firm, JF Lehman & Co.



NRC provides waste management services for industrial companies. It also provides spill containment and site remediation services as well as operating landfills in the Permian Basin for E&P operators. NRC had proforma 2018 revenues of $389 million and adjusted EBITDA of $91 million.

US Ecology, based in Boise, Idaho, also provides waste management services to industrial companies. The deal allows it to enter the oil and gas end market.

After the acquisition, the shareholders of US Ecology will own 70% of the combined company. It will keep the US Ecology name and will continue to be based in Boise.

The current chairman of NRC is Jim Baumgardner. He worked at US Ecology between 1999 and 2012, serving as CFO, COO & CEO during his time there.

The transaction is expected to close in the fourth quarter.

https://www.globenewswire.com/news-release/2019/06/24/1872828/0/en/US-Ecology-and-NRC-Group-Agree-to-Merge-Expanding-Leadership-in-Specialty-and-Industrial-Waste-Services.html

Houston oilfield service companies agree to merge in $1.8 billion deal

Keane Energy Group and C&J Services have agreed to merge in an all-stock merger that has a pro-forma Enterprise value of $1.8 billion.

Keane is a pure-play hydraulic fracturing company while C&J is primarily involved in completion and production services. The combined group will be the fourth largest oilfield services company after Halliburton, Schlumberger and Baker Hughes with proforma revenues of $4.2 billion.

Prior to the deal being announced, Keane had a share price of $6.99 (market cap $732 million). C&J had a share price of $10.72 (market cap $708 million).



Keane was bought by Cerberus, a PE firm, who took the business public in January 2017 in an Initial Public Offering at a share price of $19. Cerberus still owns 49% of the pre-merger Keane. At the same time as Keane completed its IPO, C&J emerged from Chapter 11 bankruptcy after converting $1.4 billion of debt to equity.

Management team

Proforma ownership will be 50% Keane and 50% C&J. The management team will be led by;

  • Patrick Murray (C&J) will be Chairman of the Board
  • Robert Drummond (Keane) will be CEO
  • JK van Gaalen (C&J) will be CFO
  • Greg Powell (Keane) will be Chief Integration Officer.

The combined head office will be run out of C&J’s office in Westchase area, rather than Keane’s office in the Galleria area. It will have a new name and ticker symbol.

Synergies

The combined company expects to generate $100 million of annualized synergies – approx $45 million from SG&A, $45 million from Supply chain (proppants etc) and $10 million from operations – with a one-off cost of $60 million to achieve such synergies.

Each party must pay the other $30 termination fee if the deal is not approved by its shareholders.

The transaction is expected to close in Q4 2019.

Over the past few years there have been tremendous improvements made in reducing the cost and time it takes to drill and complete a well. However most of the benefits have accrued to the E&P companies, not the oilfield service sector. As a whole, the sector is not generating enough returns and more mergers seem inevitable.

https://www.prnewswire.com/news-releases/keane-and-cj-energy-services-to-combine-in-merger-of-equals-establishing-an-industry-leading-diversified-oilfield-services-provider-300869327.html

 

 

Anadarko gives $1m transaction bonuses to 3 senior executives

Last week Anadarko announced that it was recommending the $38 billion takeover offer from Occidental Petroleum, having previously backed the $33 billion offer from Chevron. At the same time, the company announced it was paying a $1 million transaction bonus to each of three senior executives.

The bonuses were approved in recognition of their ‘extraordinary efforts to consummate the merger’. The bonuses are to be paid to

    • Bob Gwin – President
    • Ben Fink – CFO
    • Amanda McMillian – General Counsel

Change of Control payments

The bonuses are on top of the change-of-control payments that these individuals would be due under the terms of the takeover. Rather unethically, but not illegally, the Anadarko Board improved the terms of the change-of-control provisions ONE day before recommending the original deal from Chevron.



According to the Wall Street Journal, the payout for the CEO Al Walker in the event of a takeover would increase by $6.7 million to $43 million. In total, all the top executives will receive $125 million, up to $22 million more than before the payout changes.

By my calculations, before the changes described above, Mr Gwin will receive a change-of-control payment of around $29 million. Mr Fink and Ms McMillian will receive around $12 million each.

Execs helped the Board out of a jam

It didn’t reflect well on the Anadarko Board that they were negotiating in parallel with Chevron and Oxy before announcing an agreement with Chevron on April 12 for the lower offer. Had that deal stuck, there probably would have been plenty of lawsuits filed, alleging that they weren’t looking after the interests of shareholders.

I suspect the hard work of Gwin, Fink and McMillian and the persistence of Oxy, has bailed the Board out, albeit at the expense of a $1 billion termination fee due to Chevron.

Insider Trading

On a separate matter, there are no new developments on the identify of the person who made $2.5 million in profits on alleged insider trading of Anadarko stock.

SEC filing

Publicly-traded E&P company to be based in Houston after merger

Amplify Energy is merging with Midstates Petroleum in an all-stock merger-of-equals. Midstates is publicly-traded and is based in Tulsa, OK. After the merger, the Amplify management will run the business, and keep the Amplify name. The business will have its head office in downtown Houston.

Amplify Energy is the successor reporting company of Memorial Production Partners, which was publicly-traded until entering Chapter 11 bankruptcy in January 2017. Amplify’s production assets are mainly in East Texas/North Louisiana, the Rockies and California.

Midstates also entered Chapter 11 bankruptcy in April 2016, emerging six months later. The business mainly operates in the Mississippian Lime formation in Oklahoma.



Fir Tree Capital Management, a New York investment firm is the single largest shareholder in both companies. It owns 35% of Amplify and 23% of Midstates. Two executives from Fir Tree are on both boards.

Over 50% of the stockholders in Amplify and 36% of the Midstates’ stockholders have approved the combination.

The proforma business will have an Enterprise value of $720 million and a market capitalization of $430 million. Annualized adjusted EBITDA for Q4 2018 was $241 million. The company expects to generate savings of $20 million in general and admin costs.

The CEO of Amplify is Ken Mariani. He joined in May 2018. Prior to that he was the President at Enervest, a Houston energy investment firm. The CFO is Martyn Willsher who was appointed to that role a year ago. He was previously the Treasurer at Memorial Production Partners.

Press release