Frank’s International NV (NYSE: FI) will pay up to $95 million for Louisiana’s Timco Services Inc. in a deal made March 11.
The acquisition is another in a string of deals by large and small firms consolidating in the service and supply sector. Many such deals have involved the purchase of most or all assets from companies such as the $230 million purchase of C&C Technologies Inc. as well as J-Mac Tool Inc. and International Artificial Lift LLC.
A Texas subsidiary of Frank’s International entered into a purchase agreement with Timco for all outstanding equity interests of Timco in exchange for $75 million cash. The owners of Timco can earn an additional $20 million by hitting performance measures from the fourth quarter of 2015 through the second quarter of 2017.
Frank’s subsidiary also agreed to make a tax reimbursement payment of $8 million to the sellers in connection with closing of the transaction related to tax costs.
Prior to the purchase, Ken Sill, senior analyst, Global Hunter Securities, said the down-cycle could create an opportunity for Frank's International given its superior margins and exceptionally strong balance sheet.
“FI has almost $500 million in cash, essentially no debt and should continue to generate cash flow in coming quarters,” Sill said. “FI's business should be less exposed to sharply reduced activity in the U.S., with less than 15% of total 2014 revenue coming from U.S. onshore services.”
Sill said international revenues should hold up better than its peers given FI's focus on delineation and development drilling in international markets, particularly on providing services directed at deepwater developments that are less likely to be cut back in 2015.
“We expect FI will find attractive acquisition opportunities in U.S. unconventional plays, which should bolster long-term growth prospects,” he said.
Frank’s acquisition of Timco adds tubular running services and rental equipment for offshore Gulf of Mexico and onshore U.S. oil and gas operations to its portfolio.
Tudor, Pickering, Holt & Co. said in a report that concern for the company had been about making acquisitions that move it too far away from their core skills. The Timco deal expands FI’s U.S. land footprint in tubular running.
Sill said in a Feb. 26 report that first-quarter 2015 revenues would be essentially flat year-over-year, but did not provide earnings guidance. The company has said its 2015 capex will be $150 million, a 23% decline compared to 2014.
“Our estimate assumes U.S. onshore revenues fall by 49% year-over-year by the third quarter of 2015,” he said. “We expect tubular sales to hold up relatively well after a larger than usual 20% decline in the first quarter of 2015.”
International services will likely see revenues down year-over-year in the second half of the year on pricing pressure even if activity does not slow, he said.
Franks will finance the Timco acquisition through cash on hand. The acquisition is expected to close in 2015’s second quarter.
Gary Luquette, president and CEO of Frank’s, said the transaction will allow the company to expand its presence in the U.S. land market. Mark Guidry, Timco’s president, will become vice president of Frank’s South Texas operations after the deal closes, the oil services company said.
Simmons & Co. International was Frank’s financial adviser, and Vinson & Elkins LLP was its legal counsel.
Frank’s International NV maintains offices, plants and manufacturing facilities in 60 countries on six continents. Its U.S. headquarters is in Houston and its global headquarters in The Netherlands.
Timco Services is based in Lafayette, La.
Recommended Reading
Chesapeake-Southwestern Deal Delayed Amid Feds Scrutiny of E&P M&A
2024-04-05 - The Federal Trade Commission asked Chesapeake and Southwestern for more information about their $7.4 billion merger — triggering an automatic 30-day waiting period as the agency intensifies scrutiny of E&P deals.
Chord, Enerplus’ $4B Deal Clears Antitrust Hurdle Amid FTC Scrutiny
2024-04-08 - Chord Energy and Enerplus Corp.’s $4 billion deal is moving forward as deals by Chesapeake, Exxon Mobil and Chevron experience delays from the Federal Trade Commission’s requests for more information.
Diamondback Prices Senior Notes to Help Cover Endeavor Deal Cost
2024-04-10 - Diamondback Energy’s notes will help cover cash consideration for the pending acquisition of Endeavor Energy as well as repaying debt owed by Endeavor.
Diamondback Energy to Acquire Permian’s Endeavor for $26B
2024-02-11 - Diamondback Energy will acquire Endeavor Energy in a cash-and-stock agreement that will create a Permian juggernaut with a combined value of more than $52 billion in a merger of near equals.
Sold in 66 Days: Inside the Diamondback-Endeavor Deal
2024-03-26 - Diamondback Chairman and CEO Travis Stice first offered “at least $25 billion” for Endeavor Energy Resources on Dec. 8. The deal closed just weeks later for $26 billion.