Tag Archives: M&A

ION Geophysical puts itself up-for-sale


ION Geophysical, based in west Houston, has put itself up-for-sale. The company has hired Tudor Pickering Holt to assist in the evaluation of a range of strategic alternatives including outright sale, sale of assets and debt financing.

The stock price jumped from $1.50 to $1.94 in after-hours trading. That gives it a market capitalization of $62 million.

Traditionally, the company has provided seismic services to the offshore oil and gas market. More recently, it has been trying to diversify into providing mission-critical subscription offerings and engineering services offshore (like a maritime equivalent of an air traffic control system).

The company has revenues of about $77 million, but it is still losing money even at the EBITDA level. It hasn’t made an annual operating profit since 2014.

Debt restructuring

In April, it completed a debt restructuring (code name Project Poseidon). It exchanged $121 million of debt due in December 2021 with $116 million of new notes due December 2025. $7 million of the old notes remain outstanding. The new notes also have a right to convert to equity at a $3 conversion price.

The company also completed a $42 million equity raise. $8 million of the cash was used to pay the costs associated with the debt issuance. $17 million was paid to the debt holders as part of the exchange.

Chinese influence wanes

The largest shareholder is Gates Capital Management, who own 16.4%. They also own $70 million of the new loan notes.

The third largest shareholder at 5.5% is BGP, a seismic contractor that is a subsidiary of China National Petroleum Corporation. However, that ownership percentage is about half of what it used to be.

For many years, the company operated a joint venture with BGP. However, in March 2020, the company announced it had agreed to sell its 49% stake in the joint venture for $12 million. It didn’t say to whom and the deal still hasn’t closed 18 months later.


Houston-based distributor sold for $1 billion

Distribution International, a Houston-based company backed by Advent International, is being acquired for $1 billion in cash. The purchaser is TopBuild Corp, based in Florida.

DI was founded in 1986 from the merger of three Gulf Coast distributors. It is a leading distributor of insulation and related supplies for commercial and industrial buildings in North America. Its corporate office is based in downtown Houston.

TopBuild is a distributor of insulation and building products to the construction industry, mostly to the residential market.

DI has had three different PE-backed owners since being carved out from a British company, SIG plc, in 2006. Grey Mountain Partners owned it between 2006-2010, Audax Group between 2010-2014 and Advent since then. The company has made 11 acquisitions over the past six years.

DI had revenues of $747 million for the 12 months ending June 2021 and adjusted EBITDA of $75 million (10%). It has 84 locations in the USA and 17 in Canada.

TopBuild expects to achieve synergies of between $35-$40 million over the next two years, though they gave no specific details of how that would be achieved.

The CEO, COO and CFO of DI all worked for HD Supply at some point. HD Supply is an industrial distributor, based in Atlanta. It was spun off from Home Depot in 2007, went public in 2013 and was reacquired by Home Depot in 2020.

TopBuild Investor presentation


Galveston Insurance company to be sold for $5 billion

Moody Gardens – Galveston

American National Group (ANAT), an insurance company based in Galveston, has agreed to be acquired by Brookfield Asset Management Reinsurance for $5.1 billion.

The all-cash offer of $190 per share represents a 25% over the weighted average share price for the past 30 days. There were press reports in May that the company was exploring a possible sale. Prior to that, the stock price was around $120 per share.

ANAT was formed in 1905 in Galveston by William Lewis Moody Jr. It has $30 billion in assets, primarily in life insurance, though it has health, property, and casualty products. It operates in all 50 states.

70% of the stock is owned by the Moody Family or The Moody Foundation. The Libbie Shearn Moody Trust, The Moody Foundation and the Moody Medical Research Institute, who collectively own 60% of the shares, have approved the sale.

A lot of the shares of ANAT are owned in trusts of surviving members of the Moody family. Once the beneficiary dies, most of the shares in those trusts will revert back to The Moody Foundation.  According to the 2019 financial report of The Moody Foundation, about two-thirds of its investments (direct and indirect) were tied up in its investment in ANAT, so the sale will allow it to diversify its assets.

Following closing, Brookfield Reinsurance intends to maintain American National’s headquarters in Galveston and its presence in League City, as well as its operational hubs in Springfield, Missouri and Albany, New York.

According to the Wall Street Journal there has been a ‘frenzy among investment firms to amass insurance assets in recent months, with Blackstone Group Inc., Apollo Global Management Inc. and KKR & Co. all announcing big transactions’. With low interest rates, insurance companies generate a lot of cash that can be reinvested in other higher yielding investment products.

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

In April, CFO Tim Walsh was promoted to COO.

Press release – American National Group


Golden Nugget Online Gaming to be acquired for $1.56 billion

Golden Nugget Online Gaming (GNOG), based in Houston, has agreed to be acquired by DraftKings for $1.56 billion in an all-stock merger. Both companies were taken public last year by SPACs or blank check companies.

GNOG was spun out of Landry’s, the restaurant and casino business and was taken public by Landcadia Holdings II in December 2020. All three businesses were effectively controlled by Tilman Fertitta.

Landcadia II first announced that it would take GNOG public in June 2020. It gave the business a proforma enterprise value of $745 million, which was 6.1x projected 2021 revenues. In its investor presentation at the time, Landcadia II stated that this multiple was considerably lower than DraftKings (15.2x) and GAN, another online gambling company (12.9x).

When Landcadia II closed on the deal in December, the stock price rose to $22.55 on its first day of trading and peaked at $27.18. Since February, the stock has been bouncing around the mid-to-low teens. DraftKings has agreed to pay $18.83 per share. It valued GNOG at 7.6x 2022 projected revenues.

The Landry’s business is part of Fertitta Entertainment (FEI). Mr. Fertitta is in the process of taking this business public via a SPAC (FAST Acquisition). DraftKings and FEI have entered into an extensive commercial agreement which will enable the companies to cross-sell to each other’s customer bases.

Mr. Fertitta also owns the Houston Rockets. This is not part of the FEI business going public. However, Mr Fertitta’s ownership means that GNOG can’t take some NBA bets due to regulatory issues. The sale to DraftKings eliminates that hurdle.

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

In a casino, punters generally lose, and the house always wins. In this case, Mr. Fertitta is the house.

DraftKings Investor Presentation

Diamond Offshore puts itself up for sale

Diamond Offshore Drilling has put itself up-for-sale. The company has retained Goldman Sachs as its financial advisor.

The offshore driller has its head office in west Houston and owns four drillships and eight semisubmersibles. It exited Chapter 11 bankruptcy in April 2021, having converted $2 billion debt into equity. For 2020, it had revenues of $733 million and its shares currently trade over-the-counter.

In May, the company appointed Bernie Wolford as its CEO. He was formerly the CEO at Pacific Drilling and Senior VP – Operations at Noble Corporation.

In the words of the press release, the company has appointed an independent committee ‘to explore strategic alternatives to maximize shareholder value. These alternatives may include, among other things, continuing as a standalone public company, pursuing asset acquisitions or entering into a business combination with a strategic partner.’

There has been a fair amount of restructuring and consolidation among the offshore drillers in recent months;

  • Noble acquired Pacific Drilling for $357 million in April 2021. As it acquired net assets of $422 million, Noble recognized a gain on bargain purchase of $64 million.
  • Noble and Transocean are competing to buy assets of Seadrill which has its operational headquarters in Norway and is currently in bankruptcy (filed in Houston).
  • Valaris (formed from the mergers over the years of Ensco, Pride and Rowan) emerged from bankruptcy in May 2021
  • Transocean eliminated $800 million of debt, in September 2020, in a complicated out-of-court bond restructuring.

Everybody except Transocean has recently exited bankruptcy. In all cases, bondholders wrote off a lot of debt in return for equity. Many of them are pushing for consolidations so they can realize their investments and maybe, over time, claw back some of the losses.

SEC filing – Diamond Offshore strategic alternatives





Patterson-UTI to acquire smaller rival for $295 million

Allan D. Hasty

Patterson-UTI Energy, a drilling rig contractor based in NW Houston, has agreed to acquire smaller rival, Pioneer Energy Services, based in San Antonio for $295 million. This includes the retirement of all the $200 million debt of Pioneer. $30 million will be paid in cash, the rest in stock.

Pioneer exited bankruptcy in May 2020, having converted $267 million of debt into equity.  Loomis, Sayles & Co, an investment management firm, ended up owning 44% of Pioneer. BlackRock owns 20% of Pioneer (and 15% of Patterson-UTI).

Patterson-UTI is buying 17 rigs in the USA and 8 that operate in Columbia. 16 of those rigs are super-spec rigs, adding to the 150 that Patterson-UTI already has. This will give Patterson a market share of around 30% for super-spec rigs, behind market leader, Helmerich & Payne (around 37%).

Pioneer’s drilling rigs account for about 60% of its revenue ($34 million out of $59 million for the 1st quarter of 2021). The rest of Pioneer’s revenue in the quarter came from Well Servicing ($14 million) and Wireline Services ($10 million).  Patterson has said it will divest of the Well Servicing business after the deal closes, expected in the 4th quarter of 2021.



Luby’s sells most of its operations

SBG San Antonio

Luby’s has announced that it will sell most of its operations in two separate transactions. The company has been struggling for years and, in November 2020, it agreed to liquidate its assets and dissolve the company.

Prior to the decision to liquidate, the company had 61 Luby’s branded restaurants (mostly in Texas), 24 Fuddruckers restaurants that were owned and 71 that were franchised. However, a number of the Luby’s had closed due to the pandemic.

The company also operates culinary contract services that offered on-site food services for healthcare facilities, colleges and sports stadiums. It also made sales through retail grocery outlets.

32 of the Luby’s restaurants and the brand name will be sold to a newly-formed affiliate of Calvin Gin. Approximately 1,000 workers at those restaurants will be offered positions by the buyer. Mr. Gin is part of the family that established the Flying Food Group, the third largest airline catering company in North America. The business also provides food preparation services for Starbucks.

The buyer is not paying paying any cash for the business but assuming operating liabilities and giving Luby’s a loan note. Luby’s anticipates the total value to be $28.7 million. The real estate for 25 of the 32 locations is owned by Luby’s. This is not part of the transaction and will be auctioned off by the company separately.

The Fuddruckers franchise is being sold to Nicholas Perkins, a Washington, DC-based entrepreneur for an estimated $18.5 million. Again, the payment is in the form of assumed operating liabilities and a loan note. Mr. Perkins previously acquired most of the company-owned Fuddruckers restaurants.

Once these transactions are completed, Luby’s will be left with a handful of company-owned Fuddruckers, the culinary contract service business and the retail sales.

However the main value will be derived from the sale of real estate which comprise most of the liquidation net asset value of $117 million. The company currently has 63 properties in total. The share price is $3.85, giving it a market capitalization equal to its liquidation value.

SEC filing – Luby’s sale

SEC filing – Fuddruckers sale

E&P company to be based in Houston after $5.7 billion merger

Independence Energy and Contango Oil and Gas have agreed to merge in all-stock transaction with an enterprise value of $5.7 billion.

Independence is an E&P business built and managed by KKR, a global investment firm. It consists of upstream oil and gas assets in North America, including those in the Permian, Eagle Ford, Rockies, Denver Julesburg and Barnett basins, as well as mineral and royalty interests and midstream infrastructure.

Contango operates in the Permian, Mid-Continent and Rockies areas. In October 2020, it moved its head office from Houston to Fort Worth, following its merger with Mid-Conn. Contango has made four acquisitions in the past 18 months and has a similar philosophy to KKR’s Energy Real assets team.

The Independence shareholders will own 76% of the combined business, Contango shareholders will own 24%. The combined business will be based in Houston with a new name.

The KKR Energy Real assets team will run the business, led by David Rockecharlie (CEO) and Brandi Kendall (CFO). They will remain employees of KKR. John Goff, the chairman of Contango, will be the chairman of the combined group.

The business is being positioned to be a leading consolidator in the US E&P sector and it will be KKR’s primary platform for pursuing upstream oil and gas opportunities. Unusually, the combined business, even as a public company, will be paying KKR a management fee of $53.3 million per annum plus 1.5% per annum of the net proceeds from all future issuances of equity securities.

The transaction is expected to close late in the 3rd quarter or early in the 4th quarter.

SEC filing – KKR Energy and Contango merger


Houston E&P company to merge with rival in $17 billion transaction

Cabot Oil and Gas, based in west Houston, has agreed to merge with Cimarex, based in Denver, in an all-stock transaction. The combined business will have an enterprise value of $17 billion. Cabot shareholders will own 49.5%, Cimarex 50.5% of the combined company.

Cabot has its operating assets in the Marcellus basin in NE USA, while Cimarex operates in Permian and Mid-Continent basins.

The combined company will be based in Houston with a new (as yet undetermined) name. Back office functions of Cimarex in Tulsa and Denver will be relocated to Houston.

Cimarex CEO Thomas Jorden will be the CEO of the combined company and will relocate to Houston. Dan Dingles, CEO of Cabot, will be the Executive Chairman until no later than December 2022. Cabot CFO Scott Schroeder will be the CFO of the combined group.

The Cabot management team have some rich change-of-control provisions. According to the most recent proxy statement CEO Dingles would be eligible for a payout of $40.6 million. Under the new employment agreement that Mr. Dingles has signed, he will be eligible for this payout when he steps down as Chairman.

Schroeder, the CFO who is staying on, has a change-of control package worth $19.3 million. Mark Burford, the CFO of Cimarex, has a change-of control package worth $7.9 million.

The companies are targeting $100 million of estimated annual G&A cost synergies. The markets have reacted badly to the proposed deal as there is no operational field overlap with Cabot primarily producing gas and Cimarex oil. The stock of both companies down more than 5% each.

The deal is expected to close in the fourth quarter.

SEC filing – Cabot – Cimarex merger


Houston medical devices company to be acquired for $550 million

Allergan Aesthetics, a subsidiary of AbbVie, agrees to acquire Houston-based Soliton for $22.50 per share, in cash. This values Soliton at $550 million enterprise value.

Soliton is based in the Galleria area and went public in February 2019 at $5 per share. The company uses technology licensed from MD Anderson. The product uses rapid pulses of designed acoustic shockwaves to disrupt cellular structures in skin tissue. It doesn’t have any revenues yet, however it announced its first commercial launch earlier this month.

It believes the product could be used in tattoo removal, cellulite treatment and fibrotic scar treatment. Each device will use disposable cartridges to be used in different treatment devices, equivalent to selling a razor and blades. It gained FDA approval in May 2019 for tattoo removal.

Remeditex Ventures, which owns 43% of the stock of Soliton, has agreed to vote in favor of the deal.

In November 2020, the company appointed Brad Hauser as its new CFO, replacing Dr. Chris Capelli, who became Chief Science Officer. Mr. Hauser joined from  Allergan Aesthetics where he was the General Manager for CoolSculpting, a technology that reduces fat by non-surgical methods.

SEC filing – Soliton takeover