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Jun 19, 2017 17:26 ET

Enerflex Announces Strategic Acquisition of a US Based Contract Compression Business for U$106 Million

  • Adds compression fleet of approximately 112,000 hp generating stable, repeatable, and high margin revenue and increases Enerflex’s global contract compression fleet to over 600,000 hp.
  • Increases Enerflex’s geographic footprint and concentration of revenue in the Permian and Scoop/Stack basins within the United States – one of the fastest growing natural gas markets.
  • Aligns and supports Enerflex’s strategic goal of increasing ownership of natural gas handling assets.
  • Increases Service and Rental revenue in the USA and moves Enerflex closer to its strategic objective of 35% - 40% recurring revenue.
  • Business generated revenue of approximately U$25.7 million for the year ended December 31, 2016.
  • Transaction will be financed through drawings on our credit facility and cash on hand, resulting in a Net Debt to Trailing-Twelve Month EBITDA ratio of 1.8 times at closing.
  • Transaction is expected to be immediately accretive to EPS.

CALGARY, Alberta, June 19, 2017 (GLOBE NEWSWIRE) -- Enerflex Ltd. (TSX:EFX), through its USA entity Enerflex Energy Systems Inc. (“Enerflex” or the “Company”), announced today that it has entered into a definitive agreement to acquire the compression business of Mesa Compression, LLC (“Mesa”) for U$106 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 in the USA market 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 and growing contract compression platform in the USA with attractive margins and recurring revenue. It accelerates our ability to deliver full-cycle contract services in the region and provides Enerflex with increased coverage in the Permian and Scoop/Stack basins,” said J. Blair Goertzen, Enerflex’s President and Chief Executive Officer. “The strategic fit between both organizations, the talented resources, as well as the growth opportunities will enhance the Company’s position in the contract compression business.”

Key Highlights

  • Adds a strong contract compression operations management team currently led by Al Lavenue, President and General Manager of Mesa. Mr. Lavenue is an industry veteran within the natural gas compression services market and brings over three decades of expertise with a proven track record of profitable growth. Mr. Lavenue will join Enerflex’s United States management team as Senior Vice President and will be responsible for the expansion and growth of the rentals business in the region;
     
  • Increases recurring revenue, gross margin, and EBITDA. Contracted compression and maintenance businesses are highly profitable and provide stable, predictable, and repeatable cash flow;
     
  • Significantly increases the size and scale of USA’s rental product and service offering, including gas lift compression solutions;
     
  • Rental fleet and operations are positioned in growth oriented basins – the Permian and the Scoop/Stack;
     
  • Provides meaningful “cross-sell” fabrication revenue opportunities through expanded presence; and
     
  • The purchase price represents an acquisition multiple of 8.0x 2016 EBITDA, after adjusting for certain non-recurring revenues and costs, which will not be required for the business going forward.  Enerflex expects the transaction to be immediately accretive to earnings per share.

Acquired Business
Headquartered in Oklahoma City, Oklahoma, Mesa’s business has 55 employees with operations in Oklahoma, Texas, and New Mexico. The business consists of 689 compression packages totaling approximately 112,000 horsepower, running at utilization levels above 85% and having an average fleet age of approximately 7 years.  All members of the current Mesa senior operations team will stay with the business following the closing of the Acquisition. For the year ended December 31, 2016, combined revenue was U$25.7 million.

“Mesa Compression’s employees and management are excited to be joining Enerflex and continue to grow this business,” said Al Lavenue, Mesa Compression’s President and General Manager. “Enerflex’s global reputation as a high-quality and innovative supplier to the oil and natural gas industry combined with Mesa’s track record as a leader in providing excellent, reliable, and safe contract compression services, enhances the ability to significantly expand across the USA and into new areas where we can grow our market share by leveraging these combined products and resources.”

Financing of the Transaction
The Acquisition will be financed through a combination of cash-on-hand and drawings on the existing C$775 million syndicated credit facility, which is co-led by The Toronto-Dominion Bank and Scotiabank. At closing, Enerflex’s expected pro forma Net Debt / Trailing-Twelve Month EBITDA ratio will be approximately 1.8.  As at March 31, 2017, Enerflex had cash-on-hand of approximately C$157 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 July 31, 2017. 

About Enerflex
Enerflex Ltd. is a single source supplier of natural gas compression, oil and gas processing, refrigeration systems, and electric power generation equipment – plus related 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, refrigeration systems, and electric power equipment servicing the natural gas production industry.

Headquartered in Calgary, Canada, Enerflex has approximately 1,800 employees worldwide. Enerflex, its subsidiaries, interests in associates and joint-ventures operate in Canada, the United States, Argentina, Bolivia, Brazil, Colombia, Mexico, Peru, Australia, the United Kingdom, the United Arab Emirates, Oman, Bahrain, Indonesia, Malaysia, and Thailand. 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, EBITDA, USA growth, and profitability; that the Acquisition will be accretive to the Company's earnings per share; that the Acquisition will provide access to growing markets / plays; that Enerflex will be able to cross-sell its current products; 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 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 trailing-twelve month (TTM) 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 current commitments by certain Mesa 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 Mesa'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 Mesa 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; 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 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", "EBITDA" (earnings before interest, tax, depreciation and amortization), and “Trailing-Twelve Month EBITDA (TTM EBITDA)” which do not have a standardized meaning prescribed by International Financial Reporting Standards, which has been adopted in Canada as 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 syndicated credit facility covenant calculation requirements.  Enerflex uses net debt as a key indicator of its leverage and strength of its balance sheet. There is no GAAP measure that is reasonably comparable to Net Debt. 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 Mesa’s business that is subject to the Acquisition has been prepared by management of Mesa 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 Mesa and the business as the case may be, is based on information supplied by Mesa.  The Company has not independently verified such financial information and as such does not guarantee the accuracy and completeness of the information.

 

For investor and media inquiries, please contact:
 
J. Blair Goertzen 
President & Chief Executive Officer
Tel:   403.236.6852

D. James Harbilas
Executive Vice President & Chief Financial Officer
Tel:   403.236.6857