- All-equity acquisition to create the industry's largest
contract compression fleet of 4.3 million revenue-generating
horsepower
- Deepens Kodiak's position in key operating areas, including
over 2.8 million horsepower in the Permian Basin
- Expected annual run-rate cost synergies of at least
$20 million
- CSI Compressco unitholders will receive 0.086 shares of Kodiak
common stock for each CSI Compressco common unit owned,
representing a price of approximately $1.65 per unit based on the closing price of
Kodiak's stock on December 18,
2023
- Kodiak shareholders will realize immediate accretion to
Discretionary Cash Flow and Free Cash Flow per share upon
closing
- Transaction benefits to CSI Compressco unitholders include a
significantly increased dividend, greater stock trading liquidity
and significant opportunities for long-term value appreciation
- Kodiak to host a conference call on December 19, 2023 at 9:00
a.m. ET / 8:00 a.m. CT
MONTGOMERY, Texas and THE WOODLANDS, Texas, Dec. 19,
2023 /PRNewswire/ -- Kodiak Gas Services, Inc. (NYSE:
KGS) ("Kodiak") and CSI Compressco LP ("CSI Compressco") (NASDAQ:
CCLP) today announced that they have executed a definitive merger
agreement under which Kodiak will acquire CSI Compressco in an
all-equity transaction valued at approximately $854 million, including the assumption of
$619 million of net debt, based on
the closing price of Kodiak's stock on December 18, 2023.
Strategic Rationale and Transaction Highlights
The addition of CSI Compressco's fleet will give Kodiak the
largest contract compression fleet in the industry with 4.3 million
revenue-generating horsepower, while also extending Kodiak's
service offerings deeper into the natural gas value chain through
CSI Compressco's treating, gas cooling and aftermarket services
businesses. This enhanced scale will allow Kodiak to continue to
provide the highest level of service in the industry and deepen its
industry-leading footprint in key operating areas such as the
Permian Basin and Eagle Ford Shale. Like Kodiak, CSI Compressco's
natural gas compression revenues are supported by fixed-revenue
contracts with inflation-protection mechanisms intended to drive
stable cash flows through commodity price cycles.
Utilizing Wall Street consensus estimates for both companies,
the combined entity is expected to generate approximately
$630 million in 2024 Adjusted EBITDA
after the expected annual run-rate cost synergies of at least
$20 million. The transaction is
expected to be immediately accretive to Kodiak's Discretionary Cash
Flow and Free Cash Flow per share, and leverage-neutral to Kodiak
after expected synergies. In addition, Kodiak continues to expect
to achieve its long-term leverage target of 3.0-3.5x by year end
2025. For CSI Compressco unitholders, the Kodiak stock received in
the transaction is expected to provide an enhanced dividend, while
also providing greater trading liquidity and research coverage.
CEO Commentary
Kodiak's CEO Mickey McKee noted
"I am excited to announce the acquisition of CSI Compressco, a
highly accretive and leverage-neutral transaction that we believe
will unlock significant value for both Kodiak shareholders and CSI
Compressco unitholders. The increased scale provided by the
industry's largest contract compression fleet will allow Kodiak to
continue to provide the highest level of service in the industry to
our customers, many of which are themselves undergoing
consolidation. The increase in pro forma Discretionary Cash Flow
and Free Cash Flow will provide Kodiak greater financial
flexibility to increase dividends, and implement a share repurchase
program, all of which is consistent with our capital allocation
strategy that combines investment to grow our fleet and the return
of capital to shareholders through an attractive dividend, all
while living within free cash flow."
McKee continued, "John Jackson
and his team have done a remarkable job of transforming CSI
Compressco in the nearly three years since CSI Compressco's general
partner was acquired by Spartan Energy Partners LP. The CSI
Compressco management team has demonstrated a tremendous track
record of improving fleet utilization, increasing EBITDA and
reducing leverage by focusing on large horsepower, infrastructure
applications in premier basins in the U.S., consistent with
Kodiak's core operating philosophy. We look forward to continuing
these efforts as we combine these companies and welcome the
talented employees of CSI Compressco into the Kodiak family."
John Jackson, CSI Compressco's
Chief Executive Officer, noted, "The combination of Kodiak and CSI
Compressco creates the market leader in compression infrastructure,
with significant scale and a diversified customer base. CSI
Compressco unitholders will benefit from their ownership in Kodiak
in multiple ways - particularly the scale of the combined
companies, a strong balance sheet, and an attractive dividend."
Transaction Details
Under the terms of the merger agreement, CSI Compressco
unitholders will receive 0.086 shares of Kodiak common stock for
each CSI Compressco common unit owned. The combined company
will have an "Up-C" structure at closing, and CSI Compressco
unitholders meeting certain requirements will have the ability to
elect to receive 0.086 limited liability company units representing
economic interests in Kodiak's operating subsidiary (along with an
equal number of shares of non-economic voting preferred stock of
Kodiak) for each CSI Compressco common unit they hold. Each such
unit will be redeemable at the option of the holder for one share
of Kodiak common stock (along with cancellation of a corresponding
share of preferred stock), following a six month post-closing
lock-up and subject to certain conditions. Upon closing, CSI
Compressco unitholders will own approximately 14% of the combined
company on a fully diluted basis.
The transaction has been approved by the Board of Directors of
Kodiak and the Board of Directors of CSI Compressco GP LLC. Certain
unitholders of CSI Compressco, including Spartan Energy Partners
LP, which controls the CSI Compressco GP LLC, Merced Capital LP and
Orvieto Fund that collectively own more than 50% of CSI
Compressco's outstanding units have entered into support
agreements, pursuant to which they have agreed to vote their CSI
Compressco units in favor of the merger upon effectiveness of the
S-4 Registration Statement with the SEC.
The transaction is expected to close in the second quarter of
2024, subject to certain regulatory approvals and other closing
conditions, including Hart Scott Rodino Act clearance.
Kodiak expects to launch a senior notes offering in the first
quarter of 2024, the proceeds of which would ultimately be used to
refinance CSI Compressco's debt at closing of the acquisition.
Shareholder Commentary
Alex Darden, Partner and Head of
EQT Infrastructure Advisory Team Americas, President of EQT
Partners Inc. and Kodiak board member, noted, "This transaction
brings unique, significant value creation opportunities. We have
full confidence that Kodiak's best-in-class management team, with
the combined power of CSI Compressco, will maintain the highest
level of service to their customers. EQT looks forward to
continuing our longstanding partnership with Kodiak as they
continue on their growth trajectory."
Conference Call Information
Kodiak management will host a conference call for investors on
December 19, 2023 at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). The conference call may
be accessed by dialing (201) 389-0872 or via webcast at
ir.kodiakgas.com.
Additional Information
A slide presentation with additional information is accessible
via the Kodiak website at ir.kodiakgas.com.
Advisors
Barclays acted as sole financial advisor to Kodiak and King
& Spalding LLP acted as legal counsel. Jefferies LLC acted as
sole financial advisor to CSI Compressco and Vinson & Elkins
LLP acted as legal counsel.
About Kodiak
Kodiak Gas Services, Inc. is one of the largest contract
compression services providers in the continental United States with a fleet of over 3.2 million
horsepower. Kodiak focuses on providing contract compression
services to oil and gas producers and midstream customers in
high–volume gas gathering systems, processing facilities,
multi–well gas lift applications and natural gas transmission
systems. More information is available at www.kodiakgas.com.
About CSI Compressco
CSI Compressco is a provider of compression services and
equipment for natural gas and oil production, gathering, artificial
lift, transmission, processing, and storage. In addition, CSI
Compressco provides a variety of natural gas treating services. CSI
Compressco's contract services business includes a fleet of
approximately 4,800 compressor packages providing approximately 1.2
million in aggregate horsepower, utilizing a full spectrum of low-,
medium- and high-horsepower engines. Additionally, our gas treating
equipment fleet includes natural gas cooling units used to reduce
the temperature of natural gas so that it can be further treated,
processed, or compressed. CSI Compressco also provides well
monitoring and automated sand separation services in conjunction
with compression and related services in Mexico. CSI Compressco's aftermarket business
provides compressor package reconfiguration and maintenance
services. CSI Compressco's customers comprise a broad base of
natural gas and oil exploration and production, midstream,
transmission, and storage companies operating throughout many of
the onshore producing regions of the
United States, as well as in a number of foreign countries,
including Mexico, Canada, Argentina, and Chile. CSI Compressco's General Partner is
owned by Spartan Energy Partners LP.
Important Information about the Transaction and Where to Find
It
In connection with the merger transaction (the "Merger"), Kodiak
will file with the U.S. Securities and Exchange Commission (the
"SEC") a registration statement on Form S-4, that will include a
consent solicitation statement of CSI Compressco and a prospectus
of Kodiak. The Merger will be submitted to CSI Compressco's
unitholders for their consideration. CSI Compressco and Kodiak may
also file other documents with the SEC regarding the Merger. A
definitive consent solicitation statement/prospectus will be mailed
to unitholders of CSI Compressco. This communication is not a
substitute for the registration statement or consent solicitation
statement/prospectus that will be filed with the SEC or any other
documents that Kodiak or CSI Compressco (as applicable) may file
with the SEC or send to unitholders of CSI Compressco in connection
with the Merger. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION
WITH RESPECT TO THE MERGER, INVESTORS, SHAREHOLDERS AND UNITHOLDERS
OF KODIAK AND CSI COMPRESSCO ARE URGED TO READ THE REGISTRATION
STATEMENT, CONSENT SOLICITATION STATEMENT/PROSPECTUS AND ANY OTHER
RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS
WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY
AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY
CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND
RELATED MATTERS.
The registration statement and consent solicitation
statement/prospectus, any amendments or supplements thereto and
other relevant materials, and any other documents filed by CSI
Compressco or Kodiak with the SEC, may be obtained once such
documents are filed with the SEC free of charge at the SEC's
website at www.sec.gov or free of charge from CSI Compressco at CSI
Compressco's website at www.csicompressco.com or by directing a
request to CSI Compressco's Investor Relations Department at
jon.byers@csicompressco.com or Kodiak at www.kodiakgas.com or by
directing a request to Kodiak's Investor Relations Department at
IR@kodiakgas.com.
Participants in the Solicitation
CSI Compressco, Kodiak and certain of their respective executive
officers, directors, other members of management and employees
(including those of CSI Compressco's general partner) may, under
the rules of the SEC, be deemed to be "participants" in the
solicitation of proxies in connection with the Merger. Information
regarding the directors and executive officers of CSI Compressco's
general partner is available in the section titled "Part III. Item
10. Directors, Executive Officers, and Corporate Governance" on
page 49 of CSI Compressco's Annual Report on Form 10-K for the year
ended December 31, 2022, filed with
the SEC on March 13, 2023 (and
available at
https://www.sec.gov/Archives/edgar/data/1449488/000144948823000007/cclp-20221231.htm#i40c921f80f634f31b68afa431e9e8b34_97).
Information regarding Kodiak's directors and executive officers is
available in the section titled "Management—Directors and Executive
Officers" on page 115 of Kodiak's final prospectus filed in
connection with Kodiak's initial public offering and with the SEC
on June 30, 2023 (and available at
https://www.sec.gov/Archives/edgar/data/1767042/000119312523180561/d454014d424b4.htm#rom454014_10).
These documents may be obtained free of charge from the sources
indicated above. Other information regarding the participants in
the proxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, will be
contained in the registration statement on Form S-4, the consent
solicitation statement/prospectus and other relevant materials
relating to Merger to be filed with the SEC when they become
available. Security holders, potential investors and other readers
should read the consent solicitation statement/prospectus carefully
when it becomes available before making any voting or investment
decisions.
No Offer or Solicitation
This communication relates to the Merger and is for
informational purposes only and is not intended to, and shall not,
constitute an offer to sell or the solicitation of an offer to buy
any securities, or a solicitation of any vote or approval, pursuant
to the Merger or otherwise, nor shall there be any sale of
securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under
the securities laws of any such jurisdiction. No offering of
securities shall be made except by means of a prospectus meeting
the requirements of Section 10 of the Securities Act of 1933, as
amended.
Cautionary Note Regarding Forward-Looking Statements
This news release contains, and our officers and representatives
may from time to time make, "forward-looking statements" within the
meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are neither historical facts nor assurances of future
performance. Instead, they are based only on our current beliefs,
expectations and assumptions regarding the future of our business,
future plans and strategies, projections, anticipated events and
trends, the economy and other future conditions.
Forward-looking statements can be identified by words such as:
"anticipate," "intend," "plan," "goal," "seek," "believe,"
"project," "estimate," "expect," "strategy," "future," "likely,"
"may," "should," "will" and similar references to future
periods. In particular, this news release includes (without
limitation) forward-looking information pertaining to: the
anticipated financial performance of the combined entity; the
expected run rate synergies and efficiencies to be achieved as a
result of the transaction; expected accretion to discretionary cash
flow; expectations regarding the leverage and dividend profile of
the combined entity; expansion and growth of the business; Kodiak's
plans to finance the transaction; and the receipt of all necessary
approvals to close the transaction and the timing associated
therewith. This forward-looking information is based on
assumptions, estimates and analysis made by Kodiak and CSI
Compressco and their perception of trends, current conditions and
expected developments, as well as other factors that are believed
by Kodiak and CSI Compressco to be reasonable and relevant in the
circumstances and in light of the transaction.
Because forward-looking statements relate to the future, they
are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict and many of which are
outside of Kodiak and CSI Compressco's control. Actual results and
financial condition may differ materially from those indicated in
the forward-looking statements. Therefore, you should not place
undue reliance on any of these forward-looking statements.
Important factors that could cause Kodiak and CSI Compressco's
actual results and financial condition to differ materially from
those indicated in the forward-looking statements include, among
others, the following: the satisfaction of closing conditions to
the transaction in a timely manner, if at all; receipt of all
necessary regulatory and/or competition approvals on terms
acceptable to Kodiak and CSI Compressco; the ability of the
combined entity to realize the anticipated benefits of, and
synergies from, the transaction and the timing and quantum thereof;
consequences of not completing the transaction, including the
volatility of the equity prices of Kodiak and CSI Compressco,
negative reactions from the investment community and the required
payment of certain; actions taken by government entities or others
seeking to prevent or alter the terms of the Transaction; potential
undisclosed liabilities unidentified during the due diligence
process; the accuracy of the pro forma financial information of the
combined entity; the success of business integration and the time
required to successfully integrate; the focus of management's time
and attention on the transaction and other disruptions arising from
the transaction; the ability to maintain desirable financial
ratios; the ability to access various sources of debt and equity
capital, generally, and on acceptable terms; the ability to
maintain relationships with partners and to successfully manage and
operate integrated businesses; and such other factors as discussed
throughout the "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" sections
of Kodiak's final prospectus filed with the SEC on June 30, 2023 pursuant to Rule 424(b)(4) and
throughout Part I, Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Part II, Item
1A. "Risk Factors" sections of Kodiak's and CSI Compressco's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2023.
Any forward-looking statement made in this news release is based
only on information currently available to us and speaks only as of
the date on which it is made. Except as may be required by
applicable law, Kodiak and CSI Compressco undertake no obligation
to publicly update any forward-looking statement whether as a
result of new information, future developments or otherwise.
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SOURCE CSI Compressco LP
