Nine Energy Service Inc.said Oct. 15 it plans to beef up its completion tools business with the $493 million acquisition of Magnum Oil Tools International Ltd.
Magnum is a downhole technology provider that has served the global oil and gas industry for over a decade. Headquartered in Corpus Christi, Texas, the company offers proprietary downhole completions products, including dissolvable and composite frack plugs, and other patented consumables with operating facilities in the Permian, Scoop/Stack, Bakken, Niobrara, Haynesville, Marcellus/Utica and Canada.
Nine will acquire Magnum, which does not have any debt, for a combination of about $334 million cash and 5 million shares of Nine common stock valued at $159 million, based on a 30-day value weighted average price as of Oct. 12.
Analysts with Tudor, Picking, Holt & Co. (TPH) said they were not surprised by Nine’s announcement since the company’s hunger for M&A had been well telegraphed. However, the analysts said they considered the deal pricey despite incremental downhole tools exposure being nice to see.
“Businesses like this usually ain’t cheap given high returns on capital, free cash flow generation [$300,000 2017 capex] and it looks like Nine will pay about eight to nine times run rate 2018 EBITDA [vs. Nine trading about seven times 2018 EBITDA],” TPH analysts said in an Oct. 15 research note.
Magnum is the number two player in dissolvable plugs, according to the TPH analysts, who noted that 46% of the company’s 2017 revenue was from dissolvables.
Magnum CEO Lynn Frazier, who founded the company in 1985, said he sees the transaction with Nine as a “great next step for Magnum’s business evolution.”
Source:epmag
