As we highlighted in early May, low oil prices have driven more consolidation - this time in energy services, with Trican Well Service (TCW) taking out Iron Horse Energy Services for $230M and jumping 14% in today’s session.
At under 3x EBITDA the deal screens well on a multiple basis, with TCW management expecting double digit accretion and a 150 bps improvement in FCF conversion, but it represents more than just value arbitrage…
… as the company gains access to markets outside of its geographic footprint, presenting a longer term opportunity for organic growth.
Our market share in the Montney and Duvernay is very high. But as a result, we’ve somewhat neglected some of the oilier parts of the basin to the East. And our market share is very low there. We’re going to leverage off Iron Horse’s infrastructure and customer relationships to grow that business.
With $77M of cash used in the deal (remainder funded by TCW stock), Trican will remain underlevered at 0.5x - allowing the company to reward shareholders with a 10% dividend increase and continued share buybacks.
Consolidation in the space may not be over either, with the total price tag on this one approaching the market cap of names like STEP Energy Services (STEP) and Calfrac Well Services (CFW).
