Forum Energy Technologies Completes Acquisition of Variperm Energy Services

Rhea-AI Summary

Forum Energy Technologies, Inc. (NYSE: FET) has completed the acquisition of Variperm Energy Services for $150 million in cash and 2 million shares of FET’s common stock. The acquisition enhances FET’s downhole and artificial lift product portfolio, providing sand and flow control products for heavy oil applications. The transaction was funded from cash on hand, borrowings under ABL credit facility, and a $60 million seller term loan. FET also granted restricted stock unit awards to fourteen Variperm employees as an inducement to continue providing services to Variperm and FET following the acquisition.

Market Research Analyst

Forum Energy Technologies' acquisition of Variperm Energy Services represents a strategic move to enhance its product offerings in the specialized area of downhole technology solutions, particularly for heavy oil applications. This move is likely to expand FET's market share in the sand and flow control sector, which is critical for maintaining production efficiency in challenging oil extraction environments. Analyzing market trends, the demand for advanced downhole technologies is on the rise as companies seek to maximize recovery rates and minimize operational costs in response to fluctuating oil prices.

The financial structure of the deal, which includes a mix of cash and stock considerations, along with a seller term loan, indicates a leveraged acquisition strategy. The increase in FET's ABL credit facility and the extension of its maturity suggest a confident outlook by the management on the cash-flow generation capacity of the combined entity. However, the initial interest rate of 11% on the seller term loan, escalating after one year, reflects a higher cost of capital, which could impact FET's financials if the anticipated synergies do not materialize as expected.

Financial Analyst

The acquisition's cost of $150 million in cash plus 2 million shares indicates a significant investment by FET in expanding its capabilities. The transaction is described as 'accretive', suggesting that it is expected to contribute positively to earnings per share before long-term benefits are fully realized. Investors will be interested in monitoring how this acquisition affects FET's profitability metrics, such as EBITDA margins and return on invested capital, particularly given the capital-intensive nature of the oil and gas industry.

Furthermore, the amendments to the ABL credit facility and the issuance of the Inducement Grants to Variperm employees are indicative of FET's commitment to a smooth integration process. While the Inducement Grants are not expected to have a significant dilutive effect, given the small number of shares relative to the total outstanding, they are an essential factor for retaining key talent and ensuring continuity of operations.

Energy Sector Analyst

The strategic acquisition of Variperm by Forum Energy Technologies is a clear indicator of FET's intent to solidify its position in the heavy oil segment, an area that continues to be of importance despite the global push towards renewable energy. The integration of Variperm's specialized sand and flow control products into FET's portfolio is expected to enhance the company's competitiveness in the oilfield services market.

From an industry perspective, the move underscores the ongoing consolidation trend within the oil and gas sector, where companies are seeking to broaden their technology offerings and improve operational efficiencies. This acquisition could potentially offer cross-selling opportunities and operational synergies, leading to cost savings and improved service delivery. Stakeholders will be looking for evidence of these synergies in future financial reporting and operational updates from FET.

HOUSTON--(BUSINESS WIRE)-- Forum Energy Technologies, Inc. (NYSE: FET) today announced it has completed the acquisition of Variperm Energy Services (“Variperm”), a leading manufacturer of customized downhole technology solutions, providing sand and flow control products for heavy oil applications. Total consideration for the acquisition consisted of $150 million of cash and 2 million shares of FET’s common stock, subject to customary purchase price adjustments.

“This accretive acquisition enhances FET’s downhole and artificial lift product portfolio by adding a leading manufacturer of customized downhole technology solutions in sand and flow control for heavy oil applications. We expect the combined global footprint of FET and Variperm to benefit both legacy FET and Variperm products,” said Neal Lux, President and CEO of FET. “We are excited to welcome the Variperm employees to the FET team.”

Transaction Financing

The cash consideration for the transaction was funded from cash on hand, borrowings under our ABL credit facility, and a $60 million seller term loan. The seller term loan will mature in December 2026 and provides 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.

As previously disclosed, FET completed an amendment to the company’s ABL credit facility in November 2023 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 effectiveness of the above amendments was conditioned on the closing of the acquisition, which condition has been satisfied.

Inducement Grants

FET, in connection with the acquisition of Variperm, granted certain restricted stock unit awards (the “Inducement Grants”) intended to qualify as “inducement grants” under the “employment inducement awards” exemption in Section 303A.08 of the New York Stock Exchange Listed Company Manual to fourteen employees of Variperm as an inducement for them to continue to provide services to Variperm and FET following the acquisition. None of the grantees are executive officers of FET and none of the awards were individually negotiated.

The fourteen employees received an aggregate of 39,000 restricted stock units (“RSUs”). The RSUs will vest in full on the second anniversary of the closing date of the acquisition of Variperm, subject to the employee's continued employment through such vesting date.

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.

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 include the benefits of the acquisition of Variperm and the expectations of plans, strategies, objectives and anticipated financial and operating results of the combined company.

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 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240104873250/en/

Rob Kukla

Director of Investor Relations

281.994.3763

Rob.Kukla@f-e-t.com

Source: Forum Energy Technologies, Inc.

FAQ

What is the acquisition amount for Variperm Energy Services by Forum Energy Technologies?

Forum Energy Technologies acquired Variperm Energy Services for $150 million in cash and 2 million shares of FET’s common stock.

How was the acquisition of Variperm Energy Services financed by Forum Energy Technologies?

The acquisition was financed from cash on hand, borrowings under ABL credit facility, and a $60 million seller term loan.

What is the purpose of the restricted stock unit awards granted by Forum Energy Technologies in connection with the acquisition?

Forum Energy Technologies granted the restricted stock unit awards to fourteen Variperm employees as an inducement for them to continue providing services to Variperm and FET following the acquisition.