Enerflex Announces Strategic Acquisition of International Contract
Compression, Processing and After-Market Services Business for
US$430 Million
- Adds compression fleet and gas treating facilities under
long-term rental contracts generating stable, repeatable and high
margin revenue
- Provides access to new high growth international markets
- Presents attractive cross-sell opportunities
- Increases recurring Service and Rental revenue from 27% to 33%
of total revenue on a pro-forma basis
- Increases EBITDA margins from 9% to 12% on a pro-forma
basis
- Business generated EBITDA of US$57 million on revenue of
US$128 million for the year ended December 31, 2013, representing a
45% EBITDA margin
- Transaction is expected to be immediately accretive to EPS
- Presentation and conference call tomorrow, June 2, 2014 at
7:00 a.m. MDT
CALGARY, ALBERTA--(Marketwired - Jun 1, 2014) - Enerflex Ltd.
(TSX:EFX) ("Enerflex" or the "Company"), announced today that it
has entered into a definitive agreement to acquire the
international contract compression and processing business, as well
as the after-market services business of Axip Energy Services, LP
("Axip") for US$430 million in cash, subject to certain purchase
price adjustments ("Acquisition").
The transaction is consistent with Enerflex's objective of
increasing recurring revenue streams and expanding geographic
markets while supporting the Company's strategy of being a global
supplier of turnkey energy solutions through compression,
processing and electric power equipment sales, after-market service
and contract operations.
"This acquisition provides Enerflex with an established platform
to expand into growing geographies in a business with attractive
margins and recurring revenue. It accelerates our ability to
deliver full cycle contract services and cross-sell fabrication
product offerings into high-growth international markets," stated
J. Blair Goertzen, Enerflex's President and Chief Executive
Officer.
Key Highlights
- Materially increases recurring revenue and gross margin.
Contracted compression, processing and maintenance businesses are
highly profitable and provide stable, predictable and repeatable
cash flow;
- Significantly increases size and scale of global product and
service offerings;
- Provides new access to attractive oil and gas producing
countries including Mexico, Argentina, Brazil, Peru and Thailand.
Enhances existing operations in Bahrain, Colombia, Malaysia and
Indonesia and diversifies Enerflex's customer base and revenue
streams;
- Provides meaningful "cross-sell" fabrication revenue
opportunities through expanded presence in attractive international
regions;
- Captures first-mover advantage in Mexico's recently announced
oil and gas industry liberalization initiatives through Enerflex's
ability to provide single-source solutions for fabrication,
compression and processing and treating;
- Adds a strong contract operations management team currently led
by Patricia Martinez, Senior Vice President of Axip International
Contract Services. Ms. Martinez will join Enerflex's executive
management team as President, Latin America and will be responsible
for the expansion and growth of the contract operations business
and Enerflex's product sales in the region; and
- The purchase price represents an acquisition multiple of 7.5x
2013 EBITDA, after adjusting for certain non-recurring revenues and
costs, which will not be required for the business going forward,
and excluding any potential synergies. Enerflex expects the
transaction to be immediately accretive to earnings per share.
Acquired Business
Axip's international contract compression and processing
business and after-market service is a leading provider of global
energy services. Headquartered in Houston, Texas, Axip's
international business has 173 employees with operations in Mexico,
South America, Southeast Asia and the Middle East. Key energy
infrastructure assets to be acquired include a 448 unit compression
fleet totaling approximately 285,000 horsepower, running at
utilization levels above 90% and having an average fleet age of
approximately 5.5 years. As well, the assets to be acquired include
gas treating facilities in Mexico, Argentina and Peru. All members
of the current Axip international senior management team will stay
with the business following the closing of the Acquisition. For the
year ended December 31, 2013, combined revenue and EBITDA from
compression, processing and after-market services were US$128
million and US$57 million respectively, after adjusting for certain
non-recurring revenues and costs, representing an EBITDA margin of
45%. The Acquisition does not include Axip's U.S. assets.
Financing of the Transaction
The Acquisition will be financed with at least C$125 million
from cash-on-hand, with the balance funded through new C$675
million committed revolving and operating facilities led by The
Toronto-Dominion Bank and Scotiabank. At closing, Enerflex's
expected pro forma Net Debt/Trailing Twelve Month EBITDA ("TTM
EBITDA") ratio will be approximately 2.0x. As at March 31, 2014,
Enerflex had cash-on-hand of approximately C$219 million.
Closing of the Acquisition and Other Information
Closing of the Acquisition is subject to certain conditions,
including receipt of several regulatory and third party approvals
and is not expected to occur before June 30, 2014. These conditions
are described in the definitive agreement for the Acquisition which
will be available on SEDAR at www.sedar.com.
Advisor
Scotiabank is acting as financial advisor to Enerflex.
Conference Call and Webcast
Analysts, investors, members of the media and other interested
parties are invited to participate in a teleconference and audio
webcast on Monday, June 2, 2014 at 7:00 a.m. MDT to discuss the
Acquisition.
To participate, please call 1.800.734.4208 (North America) or
1.416.981.9000 (Outside North America). Please dial in 10 minutes
prior to the start of the call. No passcode is required. The live
audio webcast of the teleconference will be available on the
Enerflex website at www.enerflex.com under the Investors section on
June 2, 2014 at 7:00 a.m. MDT.
Presentation slides for the conference call will be made
available on the Enerflex website located at www.enerflex.com.
A replay of the teleconference will be available one hour after
the conclusion of the call until midnight, June 9, 2014. Please
call 1.800.558.5253 or 1.416.626.4100 and enter passcode
21718651.
About Enerflex
Enerflex Ltd. is a single source supplier of natural gas
compression, oil and gas processing, refrigeration systems and
electric power equipment - plus in-house engineering and mechanical
service expertise. The Company's broad in-house resources provide
the capability to engineer, design, manufacture, construct,
commission and service hydrocarbon handling systems. Enerflex's
expertise encompasses field production facilities, compression and
natural gas processing plants, CO2 processing plants, refrigeration
systems and electric power equipment servicing the natural gas
production industry.
Headquartered in Calgary, Canada, Enerflex has approximately
3,100 employees worldwide. Enerflex, its subsidiaries, interests in
associates and joint-ventures operate in Canada, the United States,
Colombia, Australia, the United Kingdom, Russia, the United Arab
Emirates, Oman, Bahrain, Indonesia, Malaysia and Singapore.
Enerflex's shares trade on the Toronto Stock Exchange under the
symbol "EFX". For more information about Enerflex, go to
www.enerflex.com.
Advisory Regarding Forward-Looking Statements
In the interest of providing readers with information
regarding Enerflex, including management's assessment of the future
plans and operations of Enerflex, certain statements contained in
this news release constitute forward-looking statements or
information (collectively "forward-looking
statements") within the meaning of applicable securities
legislation. Forward-looking statements are typically identified by
words such as "anticipate", "continue", "estimate", "expect",
"forecast", "may", "will", "project", "could", "plan", "intend",
"should", "believe", "outlook", "potential", "target" and similar
words suggesting future events or future performance. In
particular, this news release contains, without limitation,
forward-looking statements pertaining to the following: certain
anticipated strategic benefits of the Acquisition, including the
anticipated effects of the Acquisition on Enerflex's recurring
revenues, gross margins, international growth, and profitability;
that the Acquisition will be accretive to the Company's earnings
per share; that the Acquisition will provide access to new markets;
that Enerflex will be able to cross-sell its current products; the
possible advantages of being "first mover" in the Mexican market;
expected additions to Enerflex's management team post-Acquisition;
the sources of capital to fund the anticipated purchase price of
the Acquisition, including the expectation that the new revolving
credit facility will be available for use by Enerflex to fund a
portion of the purchase price; certain of the assets expected to be
acquired by Enerflex as a result of the Acquisition; Enerflex's
expected pro-forma net debt and LTM (last twelve month) EBITDA
ratios after the completion of the Acquisition; and the expected
closing date of the Acquisition.
With respect to forward-looking statements contained in this
news release, Enerflex has made assumptions regarding, among other
things: the ability of Enerflex to execute and realize on the
anticipated benefits of the Acquisition; the value and benefits of
the Acquisition; that Enerflex's lenders will not amend, terminate
or otherwise fail to provide the credit facilities described
herein; that the acquired business will perform in a manner
consistent with past periods; that no contractual or other
arrangements in respect of the acquired business will be amended,
modified or terminated as a result of the Acquisition, or
otherwise; that all conditions to closing of the Acquisition,
including receiving all required third party and regulatory
approvals, will be provided in a timely manner and without
unforeseen or onerous conditions; that the Company's presence in
Mexico prior to the arrival of certain other competitors will prove
advantageous; that the current commitments by certain Axip managers
to continue with the business will remain accurate; expectations
and assumptions concerning prevailing usage rates, exchange rates,
interest rates, applicable tax laws; estimates of operating costs;
anticipated timing and results of capital expenditures; the
sufficiency of budgeted capital expenditures in carrying out
planned activities; the state of the economy and the financial
conditions of Enerflex's and Axip's customers; results of
operations; business prospects and opportunities; the availability
and cost of financing, labor and services; the impact of increasing
competition; the effect of seasonality fluctuations; the risk of
violations of law, breaches of policies or unethical behavior;
property and casualty risks; injuries at the workplace or health
issues; the risk of material adverse effects arising as a result of
litigation; and events or series of events may cause business
interruptions.
Although Enerflex believes that the expectations reflected
in the forward looking statements contained in this news release,
and the assumptions on which such forward-looking statements are
made, are reasonable, there can be no assurance that such
expectations will prove to be correct. Readers are cautioned not to
place undue reliance on forward-looking statements included in this
news release, as there can be no assurance that the plans,
intentions or expectations upon which the forward-looking
statements are based will occur. By their nature, forward-looking
statements involve numerous assumptions, known and unknown risks
and uncertainties that contribute to the possibility that the
predictions, forecasts, projections and other forward-looking
statements will not occur, which may cause Enerflex's actual
performance and financial results in future periods to differ
materially from any estimates or projections of future performance
or results expressed or implied by such forward-looking statements.
These risks and uncertainties include, among other things, the
following: that the Acquisition may not close when planned (or at
all) or on the terms and conditions set forth herein; the failure
of Enerflex and/or Axip to obtain the necessary regulatory and
other third party approvals required in order to proceed with the
Acquisition; the risk that the proposed Acquisition could be
modified, restructured or terminated; the failure of Enerflex to
secure its new credit facility on terms satisfactory to it, or at
all; volatility in market prices for oil and natural gas; incorrect
assessment of the value of the Acquisition; risks inherent in
operating in foreign and emerging markets; failure to realize the
anticipated benefits and synergies of the Acquisition; the impact
of general economic conditions; industry conditions, including the
adoption of new laws and regulations and changes in how they are
interpreted and enforced; volatility of oil and gas prices; oil and
gas product supply and demand; risks inherent in the ability to
generate sufficient cash flow from operations to meet current and
future obligations, including future dividends to shareholders of
the Company; increased competition; the lack of availability of
qualified personnel or management (including those that are
expected to continue with the acquired business); labour unrest;
political unrest; fluctuations in foreign exchange or interest
rates; stock market volatility; opportunities available to, or
pursued by, the Company; obtaining financing; and the other factors
described under "Risk Factors" in Enerflex's most recently filed
Annual Information Form available in Canada at www.sedar.com.
Readers are cautioned that this list of risk factors should not be
construed as exhaustive.
The forward-looking statements contained in this news
release speak only as of the date of this news release. Except as
expressly required by applicable securities laws, Enerflex does not
undertake any obligation to publicly update or revise any forward
looking statements, whether as a result of new information, future
events or otherwise. The forward-looking statements contained in
this news release are expressly qualified by this cautionary
statement.
Non‐GAAP Measures
This news release contains the term "Net Debt" and "EBITDA"
(earnings before interest, tax, depreciation and amortization)
which do not have a standardized meaning prescribed by Canadian
generally accepted accounting principles ("GAAP") and therefore may
not be comparable with the calculation of similar measures by other
companies. "Net Debt" and "TTM EBITDA" in this news release are
calculated in accordance with Enerflex's syncidated credit facility
covenant calculation requirements. EBITDA provides the results
generated by the Company's primary business activities prior to
consideration of how those activities are financed, assets are
amortized or how the results are taxed in various jurisdictions.
EBITDA as presented is not intended to represent cash provided by
operating activities, net earnings or other measures of financial
performance calculated in accordance with GAAP. These measures have
been described and presented in this news release in order to
provide readers with additional information regarding the Company's
liquidity and its ability to generate funds to finance its
operations and dividends.
Note on Certain Financial Information
Certain financial and other information provided herein in
respect of Axip's international business that is subject to the
Acquisition has been prepared by management of Axip on a
"carve-out" basis in accordance with US generally accepted
accounting principles which differ in certain respects from those
principles that would have been followed had such financial
information been prepared in accordance with Canadian GAAP. As at
the date hereof, such "carve-out" financial information has not
been audited and, as a result, may be subject to change. All
historical financial information in respect of Axip and the
International Business as the case may be, is based on information
supplied by Axip. The Company has not independently verified such
financial information and as such does not guarantee the accuracy
and completeness of the information.
J. Blair GoertzenPresident & Chief Executive
Officer403.236.6852D. James HarbilasExecutive Vice President &
Chief Financial Officer403.236.6857
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