Mergers & Acquisitions Update: June 2, 2011

Many entrepreneurs looking to sell their companies are wondering what their business is worth. Below are some recent transactions, some where the parties have disclosed the Enterprise Value (EV: which is the sum of debt and equity of a company) and the multiple of cash flow or Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA). The range of the deals shown is from 4.5 x EV/EBITDA that Savanna Energy Services offered for Silverstar Well Servicing to 8.4 x EV/EBITDA that the Peak Energy Services shareholders recently accepted from Clean Harbours.


May 2011
  • May 26, 2011
    • Savanna Energy Services to acquire Silverstar Well Servicing for $39.6 million plus debt of $5.5 million
    • Silverstar has 17 service rigs – purchased near replacement value of $2.7M per rig
    • Silverstar 2010 EBITDA of $8M, 2011 EBITDA expected to be $10 million
    • 4.5 x EV/EBITDA
    • Savanna trading at 6.2 x 2011 estimated EBITDA
  • May 26, 2011
    • Cordy Oilfield Services to acquire RB2 Energy Services
    • RB2 Operates hydro-vac and fluid related services to oil and liquids-rich natural gas sector
    • RB2 revenue of $4 million
  • May 3, 2011
    • Mullen Group to acquire Hi-Way 9 Express
    • Hi-Way 9 provides less-than-truckload transportation in Alberta
    • Hi-Way 9 revenue of $50 million

April 2011
  • April 28, 2011
    • Gibson Energy announced initial public offering of at least $350 million
    • Gibson is engaged in movement, storage, and processing of crude oil
    • 2010 EBITDA of $180 million
  • April 27, 2011
    • Secure Energy Services entered into agreement to acquire Marquis Alliance Energy for $131 million plus $1.7 million of debt
    • Marquis specializes in the supply and development of drilling fluids and drilling fluid systems
    • Marquis EBITDA of $26.4 million in fiscal 2011
    • 5 x EV/EBITDA
    • Secure trading at 7.4 x 2011 estimated EBITDA
  • April 4, 2011
    • Clean Harbours announces acquisition of Peak Energy Services for $161 million plus net debt of $35 million
    • Peak provides drilling and production services and water technology solutions
    • 2010 EBITDA of $23.3 million
    • 8.4 x EV/EBITDA
    • Clean Harbours trading at 8.3 x EV/EBITDA
  • April 4, 2011
    • Essential Energy Services to combine with Technicoil Corp.
    • Technicoil provides coil tubing, service rigs, and hybrid drilling rigs

Small to Medium Businesses

Smaller companies (less than $8 million in EBITDA) usually command smaller multiples because the business risk is usually greater. For example, smaller companies usually have fewer customers and more customer concentration so if one or two key customers leave, a significant amount of revenue is lost. Also, if the owner is actively involved in managing the business and one of the reasons for selling is retirement, a buyer will wonder if customers and staff will stick around. Private companies are also less liquid than public companies and therefore, trade at a discount. Typically, with oilfield service companies, smaller players tend to be more dependent on a particular region, whereas large companies can shift resources between regions or even countries to balance supply and demand.

Large Public Companies

Large public companies will rarely pay more than their own EV/EBITDA multiple to acquire a smaller company. Bigger firms know that the business risk of the smaller company is greater than that of their own company and look for deals to add more value than the cost of the acquisition (also known as being "accretive" to earnings per share). The good news for potential sellers is that when public markets are as strong as they are today, strategic buyers are trading at high multiples and can afford to pay fairly high prices for companies and still have the acquisitions be accretive.

Deal dynamics also play a part in determining the price paid for a company. Public companies are usually bought at a premium because offers are publicly disclosed and buyers know that if their offer is too low, the bid may be topped by a competing offer. Owners of private companies should ensure that a similar competitive dynamic is created when it comes time to sell. It's always better for sellers to have multiple buyers at the table who know that they have to put forward their best offer to close the deal.

For more information, please contact:

Norman Eaton is a VP with MNP Corporate Finance specializing in selling private companies and Dustin Sundby leads MNP’s Oilfield Services Practice. Contact Norman or Dustin with any questions you have about recent transactions, valuing your business or selling your company.