Houston-based Exterran Corp. recently agreed to a business combination with Calgary, Alberta-based Enerflex Ltd. set to create a premier integrated global provider of energy infrastructure with a roughly $1.5 billion enterprise value.
“The scale and efficiencies this combination brings is the right path for Exterran and brings significant opportunities for accelerated growth in produced water treatment and energy transition products and services,” Andrew Way, president and CEO of Exterran, commented in a joint release on Jan. 24.
The companies will combine in an all-stock transaction in which Enerflex will acquire all of the outstanding common stock of Exterran on the basis of 1.021 Enerflex common shares for each outstanding share of Exterran stock. The transaction value for Exterran is approximately $735 million, which represents an 18% premium to Exterran’s enterprise value as at Jan. 21, according to the release.
Following the combination, the company will operate as Enerflex Ltd. and will remain headquartered in Calgary, Alberta. The companies expect to realize at least $40 million of annual run-rate synergies within 12 to 18 months after closing the combination through overhead savings and operating efficiencies.
Importantly, the combination executes upon Enerflex’s years-long strategic goal of increasing recurring revenues to improve the profitability and resiliency of its platform, according to Marc Rossiter, who will continue to serve as president and CEO and oversee all aspects of integration.
“Enerflex and Exterran each have a long history of global expertise in the delivery of modular energy solutions,” Rossiter said in the release. “Together, we are more efficient and better positioned in global capital markets.”
Enerflex is a single-source supplier of natural gas compression, oil and gas processing, refrigeration systems, and electric power generation equipment with approximately 2,000 employees worldwide.
Through the acquisition of Exterran, Enerflex will strengthen its ability to serve customers in key natural gas, water and energy transition markets as well. The pro forma geographic exposure of the combined company will be well-balanced, according to the joint release, with approximately 25%-35% of revenues from each of North America, the Middle East and Latin America.
“The timing is right for this transaction as it strengthens our positioning while global energy markets recover from the pandemic-induced lows,” Rossiter added. “Natural gas is a transition fuel that, together with renewables, will lead the world toward a lower-carbon future.”
The world’s continued reliance on natural gas is evidenced by Enerflex’s strong fourth-quarter 2021 engineered systems bookings of over CA$300 million, according to Rossiter, which was the company’s highest bookings quarter since 2018.
In January, Enerflex also successfully commissioned a gas infrastructure facility in the Middle East that Rossiter said will further strengthen the company’s asset ownership portfolio.
“The recovery remains widespread, and we are optimistic that overall market strength will continue in 2022,” he said.
The transaction is expected to close in the second or third quarter of 2022. Upon closing of the transaction, Enerflex and Exterran shareholders will respectively own approximately 72.5% and 27.5% of the total Enerflex common shares outstanding.
Enerflex will continue to trade on the Toronto Stock Exchange and intends to apply to either the New York Stock Exchange or the NASDAQ exchange for the listing of Enerflex common shares to be effective upon transaction close.
In conjunction with the transaction, Enerflex has entered into a binding agreement with the Royal Bank of Canada to provide Enerflex with a fully committed financing consisting of a $600 million three-year revolving credit facility and a $925 million five-year bridge loan facility. The bridge loan will provide financing to backstop an anticipated issuance of new debt securities prior to closing of the transaction, the company release said.
The boards of directors of Enerflex and Exterran have each unanimously approved the transaction and recommend that their respective shareholders vote in favor of the transaction.
All of the funds managed by Chai Trust Co. LLC that own common stock of Exterran and all of Exterran’s directors and officers have also entered into voting agreements with Enerflex pursuant to which they have agreed to vote their respective shares in favor of the transaction at the meeting of Exterran shareholders.
RBC Capital Markets is acting as exclusive financial adviser to Enerflex and has provided an opinion to Enerflex’s board of directors to the effect that the consideration to be paid under the transaction is fair, from a financial point of view, to Enerflex and is subject to the assumptions made as well as the limitations and qualifications, which will be included in the written opinion of RBC Capital Markets.
Norton Rose Fulbright US LLP and Norton Rose Fulbright Canada LLP (transaction counsel) and Davies Ward Phillips & Vineberg LLP and Cravath, Swaine & Moore LLP (financing counsel) are acting as Enerflex’s legal advisers.
TD Securities and Scotia Capital acted as strategic advisers to Enerflex.
Wells Fargo Securities LLC is acting as exclusive financial adviser to Exterran. King & Spalding LLP and McCarthy Tétrault LLP are Exterran’s legal adviser.
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