Forum Energy Technologies, Inc. (NYSE: FET) (“FET”) today
announced that it has entered into a definitive agreement to
acquire Variperm Energy Services (“Variperm”) for consideration of
$150 million of cash and 2 million shares of FET’s common stock,
reflecting a valuation of approximately 3.7x Variperm’s trailing
twelve months EBITDA as of September 30, 2023. The transaction is
expected to close in January 2024 and is subject to customary
closing conditions and Canadian regulatory approval.
“We are excited to have Variperm join the FET family. Variperm
is a leading manufacturer of customized downhole technology
solutions, providing sand and flow control products for heavy oil
applications. The company’s suite of differentiated technology is
designed, engineered, and custom-manufactured to meet the stringent
requirements of producers,” said Neal Lux, President and CEO of
FET. “This highly accretive acquisition is expected to transform
FET’s profitability and margin profile while adding meaningful
scale to our business.”
Combined Company Financial Highlights 1
- Revenue: $873 million, an increase of 17%
- Adjusted EBITDA: $121 million, an increase of 77%
- Adjusted EBITDA margin: 14%, an increase of 470 basis
points
- Operating cash flow: $47 million, an increase of 292%
- Free cash flow: $70 million, an increase of 84%
Mr. Lux continued, “Importantly, our balance sheet remains
strong following this transaction. At closing, we expect our net
leverage ratio to be 1.9x with liquidity of $142 million. We expect
this to provide ample capital to fund and grow the combined
business. Consolidated 2024 free cash flow and EBITDA growth is
expected to reduce net leverage to between 1.0x and 1.3x by the end
of 2024.”
______________________________
1 Represents preliminary financial
information equal to the sum of FET and Variperm for the trailing
twelve months as of September 30, 2023. The above metrics do not
include potential revenue and cost synergies, acquisition-related
interest and taxes, and are not intended to represent FET on a pro
forma basis giving effect to the acquisition under SEC rules or the
results FET actually would have achieved if FET had acquired
Variperm on October 1, 2022. Operating cash flow and free cash flow
are net of estimated acquisition-related interest, net of taxes.
Indicated changes reflect the difference between the combined
entities as presented on the basis described above and FET on a
standalone basis. Financial information with respect to Variperm
was prepared in accordance with Canadian GAAP. Actual historical
results of Variperm and pro forma information with respect to the
acquisition could vary materially from the preliminary information
provided.
Mr. Lux continued, “This strategic acquisition demonstrates
strong industrial logic as Variperm’s differentiated products and
technologies complement our downhole and artificial lift product
portfolio. Variperm’s strong position with blue-chip customers
further establishes FET as a key global equipment partner for
producers. The acquisition also broadens FET’s exposure to one of
the most critical sources of global energy production and security.
FET’s extensive global footprint and infrastructure can be
leveraged to expand and deliver Variperm products to a larger
global customer base, including the Middle East.”
Founded in 1969 and headquartered in Calgary, Canada, Variperm
has been a portfolio company of SCF Partners since 2014. Variperm
has approximately 290 employees across eight locations in North
America. We expect Variperm’s employees to continue their tradition
of excellent customer service and innovation as part of the FET
family.
Transaction Financing
The cash consideration for the transaction will be funded from
$90 million of cash on hand and borrowings under our ABL credit
facility, and a $60 million seller term loan. Prior to closing the
Variperm acquisition, the company will explore an alternative
financing arrangement to the seller term loan.
The seller term loan, if utilized, would mature in three years
and provide for an initial interest rate of 11% that is subject to
escalation after the first anniversary of the loan. The seller term
loan is payable at any time without penalty.
In conjunction with the acquisition, FET’s lenders agreed to
amend the company’s ABL credit facility to, among other things, (i)
permit the Variperm acquisition, (ii) increase the aggregate
revolving commitments from $179 million to $250 million, (iii)
extend the maturity date to September 2028, and (iv) allow the
seller term loan. The amendment is conditioned upon the closing of
the acquisition.
Advisors
FET was represented in the transaction by Goldman Sachs &
Co. LLC as financial advisor and Gibson, Dunn & Crutcher LLP
and Goodmans LLP as legal counsel. Variperm was represented by
TPH&Co., the energy business of Perella Weinberg Partners, as
financial advisor and Vinson & Elkins LLP and Bennett Jones LLP
as legal counsel.
Transaction Discussion with
Management
FET will discuss the acquisition of Variperm during its third
quarter 2023 earnings conference call at 10:00 a.m. Central Time on
Friday, November 3, 2023. An investor presentation describing
Variperm and the acquisition will be available prior to the call.
Both the call webcast and investor presentation can be found on the
Investor Relations link on FET’s website at ir.f-e-t.com.
FET (Forum Energy Technologies) is a global company, serving the
oil, natural gas, industrial and renewable energy industries. With
headquarters located in Houston, Texas, FET provides value added
solutions aimed at improving the safety, efficiency, and
environmental impact of our customers’ operations. For more
information, please visit www.f-e-t.com.
Forward Looking Statements and Other Legal
Disclosures
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements,
other than statements of historical facts, included in this press
release that address activities, events or developments that the
company expects, believes or anticipates will or may occur in the
future are forward-looking statements. Without limiting the
generality of the foregoing, forward-looking statements contained
in this press release specifically include the company’s ability to
complete the acquisition of Variperm (the “Variperm Acquisition”)
on the timeline or the terms currently contemplated; the company’s
ability to obtain any regulatory approvals required to complete the
Variperm Acquisition, and any conditions thereof; the ultimate
timing, outcome and results of integrating the operations of
Variperm with FET, including the combined company’s ability to
generate sufficient free cash flow to manage its long-term debt
balances; the company’s ability to realize the full benefits of the
Variperm Acquisition, including the company’s expected
transformation of its profitability and margin profile, on the
anticipated timeline or at all; the expectations of plans,
strategies, objectives and anticipated financial and operating
results of the combined company, including any statement about the
company's future financial position, liquidity and capital
resources, operations, performance, acquisitions (including the
Variperm Acquisition), returns, capital expenditure budgets, new
product development activities, costs, fourth quarter projection of
free cash flow and other guidance included in this press
release.
These statements are based on certain assumptions made by the
company based on management's experience and perception of
historical trends, current conditions, anticipated future
developments and other factors believed to be appropriate. Such
statements are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the company,
which may cause actual results to differ materially from those
implied or expressed by the forward-looking statements. Among other
things, these include potential adverse reactions or changes to
business relationships resulting from the announcement or
completion of the Variperm Acquisition; the significant costs
required to complete the Variperm Acquisition; the diversion of
management attention to transaction-related issues related to the
Variperm Acquisition; the volatility of oil and natural gas prices,
oilfield development activity levels, the availability of raw
materials and specialized equipment, the company's ability to
deliver backlog in a timely fashion, the availability of skilled
and qualified labor, competition in the oil and natural gas
industry, governmental regulation and taxation of the oil and
natural gas industry, the company's ability to implement new
technologies and services; the availability and terms of capital,
and uncertainties regarding environmental regulations or litigation
and other legal or regulatory developments affecting the company's
business; and other important factors that could cause actual
results to differ materially from those projected as described in
the company's filings with the U.S. Securities and Exchange
Commission.
Any forward-looking statement speaks only as of the date on
which such statement is made and the company undertakes no
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law.
Forum Energy Technologies,
Inc.
Reconciliation of GAAP to
non-GAAP financial information
(Unaudited)
Adjusted EBITDA
September 30, 2023
FET
Variperm
Combined
(in millions of dollars)
TTM
TTM
TTM (2)
EBITDA reconciliation (1)
Net income (loss)
$
(15
)
$
36
$
21
Interest expense
22
—
22
Depreciation and amortization
35
3
38
Income tax expense
8
13
20
Restructuring, transaction and other
costs
6
1
7
Loss (gain) on foreign exchange, net
15
—
15
Stock-based compensation expense
5
—
5
Gain on sale-leaseback transactions
(7
)
—
(7
)
Adjusted EBITDA
$
68
$
53
$
121
(1) The Company believes that the
presentation of EBITDA is useful to the Company's investors because
EBITDA is an appropriate measure for evaluating the Company's
operating performance and liquidity that reflects the resources
available for strategic opportunities including, among others,
investing in the business, strengthening the balance sheet,
repurchasing the Company's securities and making strategic
acquisitions. In addition, EBITDA is a widely used benchmark in the
investment community.
(2) Represents preliminary financial
information equal to the sum of FET and Variperm for the trailing
twelve months as of September 30, 2023. The above metrics do not
include potential revenue and cost synergies, acquisition-related
interest and taxes, and are not intended to represent FET on a pro
forma basis giving effect to the acquisition under SEC rules or the
results FET actually would have achieved if FET had acquired
Variperm on October 1, 2022. Operating cash flow and free cash flow
are net of estimated acquisition-related interest, net of taxes.
Indicated changes reflect the difference between the combined
entities as presented on the basis described above and FET on a
standalone basis. Financial information with respect to Variperm is
in accordance with Canadian GAAP. Actual historical results of
Variperm and pro forma information with respect to the acquisition
could vary materially from the preliminary information
provided.
Note: Table may not foot due to
rounding.
Forum Energy Technologies,
Inc.
Reconciliation of GAAP to
non-GAAP financial information
(Unaudited)
Free Cash Flow
September 30, 2023
FET
Variperm
Transaction
Combined
(in millions of dollars)
TTM
TTM
Adjustments (1)
TTM (2)
Free cash flow reconciliation
(3)
Net cash provided by (used in) operating
activities
$
12
$
45
$
(10
)
$
47
Capital expenditures for property and
equipment
(8
)
(2
)
—
(10
)
Proceeds from sale of property and
equipment
2
—
—
2
Proceeds from sale-leaseback
transactions
32
—
—
32
Free cash flow
$
38
$
43
$
(10
)
$
70
(1) Transaction adjustments include
incremental interest, net of tax.
(2) Represents preliminary financial
information equal to the sum of FET and Variperm for the trailing
twelve months as of September 30, 2023. The above metrics do not
include potential revenue and cost synergies, acquisition-related
interest and taxes, and are not intended to represent FET on a pro
forma basis giving effect to the acquisition under SEC rules or the
results FET actually would have achieved if FET had acquired
Variperm on October 1, 2022. Operating cash flow and free cash flow
are net of estimated acquisition-related interest, net of taxes.
Indicated changes reflect the difference between the combined
entities as presented on the basis described above and FET on a
standalone basis. Financial information with respect to Variperm is
in accordance with Canadian GAAP. Actual historical results of
Variperm and pro forma information with respect to the acquisition
could vary materially from the preliminary information
provided.
(3) The Company believes free cash flow,
before acquisitions is an important measure because it encompasses
both profitability and capital management in evaluating
results.
Note: Table may not foot due to
rounding.
Forum Energy Technologies,
Inc.
Transaction Sources and
Uses
(Unaudited)
(in millions of dollars)
Sources
FET equity (1)
$ 43
Seller term loan
60
Revolving credit facility
90
Cash from balance sheet
9
Total sources
$ 202
Uses
Equity consideration
$ 43
Cash consideration
150
Estimated fees and expenses
9
Total uses
$ 202
(1) Reflects 2 million share issuance as
part of the transaction’s equity consideration based on the closing
share price of $21.74 on November 1, 2023.
Forum Energy Technologies,
Inc.
Combined Capitalization and
Liquidity
(Unaudited)
(in millions of dollars)
Combined Capitalization
September 30,
2023
Transaction
Adjustments
4Q23 Free Cash Flow
Combined
Revolving credit facility
$
—
$
90
$
90
9.00% Notes due August 2025
134
—
134
Seller term loan
—
60
60
Other debt
—
—
—
Total debt
134
150
284
Less: Cash and cash equivalents
(37
)
9
(26
)
(54
)
Net debt
$
97
$
159
$
230
Net Debt over Adjusted EBITDA
(1)
1.4x
3.0x
1.9x
Combined Liquidity
Combined
Cash and cash equivalents
$
54
Revolving credit facility borrowing
base
197
Revolving credit facility borrowings
(90
)
Letters of credit
(19
)
Liquidity
$
142
(1) Net debt over Adjusted EBITDA is
calculated on a trailing twelve months as of September 30, 2023 and
on a 2023 estimated basis for transaction adjustments and combined
FET.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231102620167/en/
Rob Kukla Director of Investor Relations 281.994.3763
rob.kukla@f-e-t.com
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