Tag Archives: M&A

Houston SPAC to take Silica company public in $708m deal

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Pyrophyte Acquisition Corp, the Houston special purchase acquisition company (SPAC) , chaired by Dr. Bernard Duroc-Danner (the former Weatherford CEO) is to take Sio Silica public. Sio, based in Calgary, intends to extract high-quality quartz silica, which is used in solar panels, semiconductors and batteries. The deal values Sio at $708 million enterprise value.



Pyrophyte went public in October 2021 in a $175 million initial public offering (IPO). The company said it would seek targets involved in energy transitions. That could mean renewable power generation, energy storage, zero-emission transportation, carbon capture or zero/low-carbon industrial applications.

Originally, Pyrophyte had until April 2023 to complete a deal, otherwise it would have to refund the monies from the IPO. Just before the original deadline date, shareholders approved an extension to April 2024.

The Mine

Sio is developing the Vivian Sand Project, southeast of Winnipeg, Canada, which is one of the highest natural purity silica deposits in the world. Most of the world’s silica is too impure to be used in high-end products such as semiconductors. It can only be used in other products such as agriculture, low quality glass, coatings and energy. Some low-quality silica can be converted to high purity silica but at a cost of $70-$100 per ton (and most of this silica is located in Australia).

Valuation

The project is estimated to have a net present value (NPV) of $3.9 billion, using a 10% discount rate. The payback period is projected to be just over one year. The transaction values the equity of the company at 19% of the NPV. Developers of copper and lithium deposits that are not yet in production are typically valued at around 50% of NPV.

Sio will use the proceeds of the deal to fund the Phase 1 construction. It expects the project to be operational within 18 months of close.

Political risk?

Interestingly, the investor presentation doesn’t mention that the go-ahead for the project requires the approval of the Manitoba Minister of Environment and Climate. In the Manitoba elections last month, the government switched from the center-right party (Progressive Conservative Party) to the left-leaning New Democratic Party. I suspect the new Minister is in no rush to make a decision.

The deal is expected to close in the first half of 2024.

Investor Presentation

 

Earthstone Energy to be acquired for $4.5 billion

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Earthstone Energy, based in The Woodlands, has agreed to be acquired by Permian Resources in an all-stock transaction worth $4.5 billion. The executives of PR will run the combined business from its headquarters in Midland. Earthstone’s shareholders will get 27% of the combined business.

[UPDATE – 11-01-23 The deal has been completed.]



Both companies operate exclusively in the Permian Basin. Combined they will have 403,000 net acres and run 11 drilling rigs. They will be the sixth largest producer in the Permian.

Earthstone was formed in 1969 as Basic Earth Science Systems. Initially, it was based in Denver and operated in Montana and North Dakota of the Bakken. The company changed its name to Earthstone Energy in 2010 and went public the following year.

In December 2014, Oak Valley Resources, a Houston-based company completed a reverse takeover of Earthstone for $138 million.  Oak Valley founder and CEO Frank Lodzinski is now the Chairman of Earthstone.

The history of Permian Resources starts with Colgate Energy Partners. It was formed in 2015 with backing from private equity firms Pearl Energy Investments and NGP. Colgate went public in September 2022, via a merger with Centennial Resource Development. The combined company was renamed Permian Resources.  Centennial was originally taken public in 2016 by a SPAC founded by Mark Papa, who built EOG Resources and was backed by Riverstone.

In June, Earthstone agreed to buy a two-thirds interest in Novo Oil and Gas for $1 billion. Novo is a Delaware Basin E&P operator, backed by EnCap Investments. In 2022, it made three separate acquisitions for $1.5 billion.

Permian is targeting $175 million of cost synergies, mainly through lower drilling costs. The savings include $30 million for general and administrative costs or 50% of Earthstone’s current cash G&A costs.

Earthstone compensation

I tried to determine what payouts would be due to the senior management of Earthstone in the event they left as a result of the takeover. Unfortunately, unlike most of their peers, the company didn’t publish a summary compensation table for that event. However, CEO Robert Anderson would get 3x base salary and bonus (about $3.9 million), while other executives would get 2x (about $2.1 million each).

Interestingly, most of the unvested stock held by the Earthstone management vests (or has vested) this year. That’s worth around $15 million for Mr. Anderson and around $8 million or so for each of the other executives.

The deal is expected to close by the end of 2023.

SEC filing – Investor Presentation

 

Houston midstream company to be acquired for $7.1 billion

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Energy Transfer has agreed to acquire Crestwood Equity Partners in an all-stock transaction that values Crestwood at $7.1 billion enterprise value.

Crestwood is a midstream company that primarily has gathering and processing assets in the Williston Basin in the Bakken, the Delaware Basin in the Permian, and, to a lesser extent, the Powder River Basin in Wyoming. The company was formed in 2001 and went public in 2013 following a merger with Inergy Midstream.



In the past couple of years, the company has been streamlining its portfolio, selling assets in the Marcellus and Barnett shale basins and buying Oasis Midstream (Williston Basin) for $1.7 billion in February 2022.  It has its head office in downtown Houston.

ET has its head office in Dallas and is a much bigger company. Its market capitalization is $39 billion, compared to just $2.8 billion for Crestwood.

ET believes it can achieve cost synergies of $40 million a year. In addition, it should be able to refinance the debt acquired in the deal at a lower interest rate.

The Crestwood executive management are in line for big change-of-control payments, assuming they are terminated as a result of the deal. Bob Phillips, Chairman and CEO, who joined Crestwood in 2007, will receive $20 million. This includes the value of accelerated stock units. The other five senior executives will get a combined $36 million.

The deal is expected to close in Q4 2023.

Investor Presentation

 

Houston oilfield companies to merge in $5.4 billion transaction

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Patterson-UTI Energy (‘PTEN’) and Nextier Oilfield Solutions have agreed to merge in an all-stock deal that values the combined business at $5.4 billion. Both companies have their headquarters in Houston.



PTEN shareholders will hold 55% of the combined business, which will retain the Patterson-UTI name. Senior executives at PTEN (Curtis Huff – Chair, Andy Hendricks – CEO and Andrew Smith – CFO) will hold the same roles in the combined business. Robert Drummond, CEO of Nextier, will become Vice Chair of the Board. Kenneth Puchei, the CFO of Nextier, will become the Chief Integration Officer.

PTEN is historically known for its land-based contract drilling. It is also the number 7 player in the North American pressure pumping market. Nextier is number 5 in that market, and the combined business will jump to number 2, behind only Halliburton in frac horspower. Nextier also has wireline and well construction services in its portfolio of operations.

There has been an increasing trend in recent years for customers who buy PTEN’s contract drilling services to also buy pressure pumping services from then. This acquisition will help reinforce that trend.

The companies expect to generate annualized savings of $200 million in cost savings and operational synergies within 18 months of the close, which is expected in Q4 of 2023.

Patterson was formed in 1978 and went public in a $5 million IPO in 1992. It merged with UTI Energy in 2001.

Nextier was formed from the merger of Keane Energy and C&J Energy Services in 2019. Keane started in Pennsylvania in 1973 and went public in 2017. C&J founded in 1997 in Robstown, TX and went public in 2011.

SEC filing – PTEN Nextier merger

Mattress Firm to be acquired for $4 billion

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Source: Social Woodlands

Tempur Sealy, based in Kentucky, has agreed to buy Mattress Firm, based in Houston for approximately $4 billion. The purchase price consists of $2.7 billion of cash and $1.3 billion in stock.



Mattress Firm was a public company until it was acquired by Steinhoff, a South African company, in September 2016 for $2.4 billion. The following year, Steinhoff was hit with an accounting fraud (not involving Mattress Firm) and, in October 2018, Mattress Firm filed for Chapter 11 bankruptcy. It exited 48 days later, having shed 640 uneconomic leases.

Ironically, one of the contributing factors in the bankruptcy was that Mattress Firm and Tempur Sealy had a spectacular falling out in February 2017, that caused revenues to fall significantly. A new supply agreement with Tempur Sealy was signed in 2019, allowing Tempur and Sealy beds to be sold in Mattress Firm’s stores again.

Post-bankruptcy, Steinhoff owns 50.1% of the common stock whilst creditors that provided the exit financing owned the rest (prior to dilution due to management equity).

Revenue grew from $3.3 billion for the year ended September 2020 to $4.4 billion in each of the following two years. For the 12 months ending March 2023, revenues fell 9% over the comparable period to $4.2 billion as consumer spending shifted towards services. It currently has 2,329 stores ($1.8 million revenue per store).

The transaction values Mattress Firm at 9.3 times adjusted EBITDA. In addition, Tempur Sealy expects to generate $100 million in annual savings by year 4.

Mattress Firm filed to go public in January 2022 but withdrew its filing a year later, having incurred $10.5 million in costs.

The deal is expected to close in the second half of 2024.

https://www.prnewswire.com/news-releases/leading-global-bedding-company-tempur-sealy-to-acquire-mattress-firm-the-nations-largest-mattress-specialty-retailer-301819387.html

Houston SPAC to take biotech company public

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Graf Acquisition IV, based in The Woodlands, is to take NKGen Biotech public, in deal that values the company at $160 million.



NKGen is based in Santa Ana in California and is developing cell therapies for possible treatment of Alzheimer’s and Parkinson’s diseases and other neurodegenerative and oncological diseases. The company is currently owned by NKMax, a public company based in South Korea.

Graf Acquisition IV went public in May 2021 in an $150 million Initial Public Offering. It had two years to complete a deal or otherwise return the money to shareholders. That date could be extended by shareholder agreement. Graf is now planning an extension to September 2023, by which time the deal with NKGen should be completed.

The first Graf Acquisition special purchase acquisition company (SPAC) went public in October 2018. It took Velodyne Lidar public in September 2020 in a transaction that valued the business at $1.6 billion. The San Jose-based company, which makes radar-like sensors used in autonomous vehicles, had a rocky life as a public company. The original founders clashed with the SPAC and were ousted. Its technology began lagging its competitors. Velodyne Lidar merged with Ouster, another lidar company, in February 2023 in a deal that valued Velodyne at just $200 million.

Graf Acquisition IV was formed by blank check veteran James Graf. Mr Graf has served as a founder and executive officer or director of 6 SPACs. Prior to Velodyne Lidar, Mr Graf’s blank check company acquired Williams Scotsman, a business providing modular space solutions, for $1.1 billion.

Graf Acquisition II and III each filed for initial public offerings in 2021 but never completed their IPOs.

Houston E&P operator to be acquired for $2.5 billion

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[UPDATE 06-20-23 – The deal has now closed]

Ranger Oil, based in Houston, has agreed to be acquired by Calgary-based Baytex Energy for $2.5 billion or $44.36 per share. The price includes $650 million of debt.



Baytex has most of its E&P operations in Canada but it does have a 25% working interest in 78,000 acres in the Eagle Ford basin in South Texas. Ranger is a pure-play Eagle Ford operator with a gross acreage of 189,000 acres.

A third of the price price will be paid in cash, the rest in stock. Baytex shareholders will end up owning about 63% of the combined business and Ranger shareholders 37%.

The Baytex management team, led by CEO Eric Greager, who only joined the company in October, will run the combined business. However, Baytex intends to add one senior operational leader to the leadership team and retain the Ranger teams in Houston.

Ranger was formerly known as Penn Virginia Corporation. The company entered bankruptcy proceedings in 2016 and eliminated $1.1 billion in debt (converted to equity). During Chapter 11, it moved its head office from Philadelphia to Houston.

In October 2018, Denbury Resources announced it would buy Penn Virginia for $1.7 billion, including $400 million in cash. The deal collapsed in March 2019, as the then major shareholders of Penn Virginia thought the deal undervalued the company.

Juniper Capital invested $188 million in Penn Virginia in November 2020 and became the largest shareholder with a 60% stake (now down to 54%). The following year the company bought Lonestar Resources for $370 million and renamed the combined company as Ranger Oil.

In November 2022, Reuters reported the Ranger had put itself up for sale following large deals for other operators in the Eagle Ford.

The deal is expected to close in Q2 2023.

Baytex Investor Presentation – Ranger

Two Houston companies taken public by SPACs

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Verde Clean Fuels, a Houston-based company that aims to supply gasoline derived from renewable feedstocks, has been taken public by CENAQ Energy Corp, a SPAC also based in Houston.



Verde owns proprietary technology that is designed to produce gasoline from waste feedstocks (e.g. food waste, paper, grass, leaves and other greenwaste) that are otherwise landfilled. It has a demonstration facility in New Jersey. The company is conducting front-end engineering design for its first commercial facility near Phoenix, Arizona. It expects to spend $130 million in capex and complete the plant in the second half of 2024. Further plants are planned in Bakersfield, CA and Odessa, TX

The transaction values Verde at an enterprise value of $250 million or 1.8 times projected 2025 EBITDA and leaves $220 million of cash on the balance sheet to fund the initial capex and operating losses.

CEO Ernie Miller has been with the Verde (or its predecessors) since 2017. He initially joined as CFO and Chief Commercial Officer. Prior to that, he spent 12 years as CFO at Rodeo Resources, an E&P and midstream company. Prior to that, he spent 5 years at Calpine, organizing financing for cogeneration power plants.

The company is conducting a search for a Chief Financial Officer.

The stock (ticker VGAS) is up slightly since it started trading on February 16.]

Verde Clean Fuels – Investor Presentation

Rocket to the Moon

Another Houston company, Intuitive Machines, was also brought to market last week by a SPAC. The company is developing space infrastructure components such as lunar vehicles. The original $815 million deal was announced back in September. After going public at $10 per share on February 14, the stock took off like a proverbial rocket, reaching $46 just two days later. It is currently trading just under $38. The company has not issued any press releases that can account for the run-up in the stock.

Bad news for Good Works

Not such good news last week for Good Works II, a Houston SPAC. Its $723 million deal to take Direct Biologics, an Austin biotech start-up, collapsed. The deal was originally announced in October. No reason was given for the failure.

 

Houston SPAC to take Australian solar power company public

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Nabors Energy Transition Corp (‘NETC’) , a Houston SPAC, is to take Vast, an Australian company, public. After the acquisition is completed in Q2 or Q3, VAST will be listed on the NYSE, but will continue to have its corporate offices in Sydney.

Concentrated Solar Power Plant

NETC completed its $276 million IPO in November 2021. The sponsor of the SPAC is a company co-owned by Nabors Industries, a global leader in land-based drilling rigs and Tony Petrello, the current Chairman and CEO of Nabors.



Vast has developed a next generation of concentrated solar thermal power system. The system uses mirrors to concentrates the sun’s rays. That heat is then transferred and stored in molten sodium, which is then used to drive a steam turbine and create electricity.

Vast believes its system has two main advantages over solar and wind power. Firstly the system can provide efficient long-duration storage (8-16 hours). Secondly, it can generate process heat equivalent to burning fossil fuels, meaning it can be used in industrial manufacturing.

Vast has built a 1.1 MW demonstration plant in Australia that was operational from 2018 to 2020. It is currently developing a 30 MW plant that is expected to become operational in 2025 and a 20 ton per day solar methanol facility. These projects have received funding of up to AUD 215 million ($152 million) from the Australian and German governments

The transaction values Vast at $250 million, though the business will also have $336 million in cash on the balance sheet at close. The SPAC will contribute $286 million, while Vast’s owners will rollover their equity ($209 million). Nabors will also invest $15 million as will AgCentral, the main shareholder of VAST.

VAST Investor Presentation

Houston Drilling Tools company to be taken public by SPAC

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Drilling Stabilizer

Drilling Tools International (‘DTI’), which has its head office in the Westchase area of Houston, is being taken public by ROC Energy Acquisition Corp, a Dallas-based SPAC. The transaction values the business at $319 million.



DTI manages and maintains over 65,000 rental tools and drilling equipment across 22 service and distribution centers in North America and Europe. Its main machine and repair center is in Broussard, Louisiana.

The business was founded in 1984 as Directional Rentals. In 2012, Hicks Equity Partners, also based in Dallas, acquired the business. Since then, the business has made 7 acquisitions and revenue has grown to an expected $164 million in 2023.

Adjusted EBITDA for 2023 is forecast to be $58 million (35%). That’s a misleading metric for any rental business that has high capex needs. Free cash flow, defined as EBITDA less capex is forecast to be $19 or 11%.

The transaction will leave DTI with no debt and $217 million of cash on the balance sheet to fund future acquisitions.

Wayne Prejean has been the CEO at DTI since 2013. He has a long career in directional drilling companies. In 1999, he founded Wildcat Services before selling it to National Oilwell Varco in 2004. Mr. Prejean stayed with NOV after the sale.

David Johnson joined as CFO, also in 2013. He has been the CFO at a number of drilling companies prior to that.

ROC went public in December 2021 in a $150 million IPO. Its original intention was to focus on non-operated oil and gas properties (i.e. where the E&P company owns the well but does not manage the operations of the well).

ROC may have had to pivot after Granite Ridge Resources, a business that owns non-operated assets, was taken public in October 2022 by a rival SPAC chaired by Paul Ryan, the former speaker of the House of Representatives. Since going public, Granite’s stock is down 30%

The transaction is expected to close in the second quarter of 2023.

DTI – Investor Presentation