STEP Energy Services (STEP) rose 27% on an upgraded $5.50/share bid from ARC Financial, after its previous $5 bid fell through. At nearly 3.5x NTM EBITDA, the deal values STEP well above the range public markets are willing to pay…
… and it isn’t all that surprising, given the weak oil price environment that’s driven M&A activity historically. STEP management has pointed to the impact cheap barrels have had on both client activity and margins…
This has further constrained demand in an oversupplied market. In response, we are seeing service prices come down, which places additional pressure on already compressed margins.
… which has shown up in the financials.
I called out STEP as one of two future targets after Trican’s $230M acquisition on a thesis that remains the same today: energy services names need to get bigger or get bought to weather the storm. The other one? Calfrac (CFW) - still public…
… but there’s sharks in the water! Let’s see.
