NexTier Oilfield Solutions Inc. agreed to acquire Alamo Pressure Pumping LLC in a cash-and-stock transaction valued at about $268 million that NexTier said will consolidating leading providers of low-carbon well completion solutions in the Permian Basin.

“The acquisition of Alamo accelerates and magnifies the impact of our next-generation technology strategy, providing NexTier with significant opportunities for deploying gas-powered equipment and complimentary integrated solutions into a market with high and increasing demand,” commented Robert Drummond, president and CEO of NexTier, in a company release on Aug. 4.

Founded in 2017, Midland, Texas-based Alamo operates its 9 hydraulic fracturing fleets comprised of 460,000 horsepower (hp) exclusively in the Permian Basin and primarily out of the Midland Basin. About 92% of Alamo’s frac fleet is Tier IV DGB capable and, in 2020, the company achieved $68 million of EBITDA.

In the company release, NexTier noted how it expects Alamo’s focus on the Midland Basin to be highly complementary to its significant position in the Delaware Basin as it provides intra-basin diversification to establish NexTier as a leading completions provider in one of the most prolific basins in the world.

“We are impressed with Alamo's performance and their successful track record in the Midland basin,” Drummond continued. “Therefore, other than enhancement by our last-mile logistics, NexHub and digital tools, operational integration will be minimal.”

On a combined basis, NexTier expects to operate 17 hydraulic fracturing fleets in the Permian Basin post-closing. Additionally, Joe McKie, the Alamo President and CEO, will continue to lead the Alamo division of NexTier and report directly to Drummond, he added in his statement.

Analysts from Tudor, Pickering, Holt & Co. (TPH) viewed the announcement as a “solid all-around” transaction for NexTier and noted it was encouraging to see more frac market consolidation. NexTier, itself, was formed in 2019 through the merger of Houston-based pressure pumpers C&J Energy Services and Keane Group.

Combined, NexTier will own 46 hydraulic fracturing fleets totaling approximately 2.5 million hp, with the largest deployed fleet capable of being fueled by low-emission natural gas in the market today, according to the company release. The addition of Alamo’s highly utilized next-generation focused fleets fortifies NexTier’s leadership position in this market niche where demand continues to outpace supply, the release added.

“Importantly, Alamo maintains very high utilization today so NEX won’t have to take on the added burden (i.e. staffing-up, upgrading, etc.) of redeploying idle fleets into the market post-closing,” the TPH analysts wrote in a research note on Aug. 5.

As part of the transaction agreement, NexTier will acquire 100% of the ownership interests of Alamo in exchange for $100 million in cash and the issuance of 26 million shares of NexTier’s common stock. The transaction value also includes the assumption of certain existing liabilities consisting of $38 million of equipment obligations and 30 million of post-closing services to be provided to Alamo E&P.

The purchase agreement also provides for potential earn-out payments, payable in the event Alamo achieves certain EBITDA levels through year-end 2022, Tier II equipment upgrade payments determinable following completion of upgrades and various purchase price adjustments, the release noted.

Based on a total transaction value, the TPH analysts said they view the deal metrics as highly attractive as NexTier is effectively acquiring a fully utilized fleet of next-gen equipment for just about 3.4x 2022 EV/EVITDA—using company estimates—or roughly $582/hhp versus newbuild cost generally closer to around $1,000/hhp.

“In a market which is still suffering from poor industry structure, this deal represents exactly the type of consolidation activity that we hope to see more of moving forward and is a rock-solid all-around transaction for NEX in our view,” the analysts wrote.

NexTier forecasts $10 million of annualized cost synergies to be achieved within six months of transaction closing, expected by Aug. 31. Further, NexTier said the acquisition provides an accelerated path to positive free cash flow generation at attractive purchase multiple estimated by the company at approximately 3.4x.

“With no near-term debt maturities, we expect to drive cash flow back onto the balance sheet through expanded Tier IV Dual Fuel capacity and anticipated higher utilization,” added Kenny Pucheu, executive vice president and CFO of NexTier, in the release.

Pro-forma for the closing cash portion of the purchase price, NexTier maintains a balance sheet position of an estimated $272 million of total liquidity as of June 30, comprised of $250.4 million in cash plus $121.6 million of availability under its ABL credit facility, less the $100 million in cash to be paid at closing, and no near-term debt maturities.

“This transaction is a win-win, as it immediately expands our gas-powered equipment capacity, accelerating speed to market by avoiding the significant time lag associated with organically growing our low carbon fleet, with added benefit of not increasing market capacity,” Pucheu said. “In sum, we are acquiring a highly utilized base of next-generation equipment at an attractive relative valuation, upholding our commitment to delivering value to shareholders.”

King & Spalding LLP is NexTier’s legal adviser for the transaction, while Piper Sandler & Co. is serving as its financial adviser. Kirkland & Ellis LLP is serving as legal adviser to Alamo.

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