U.K.-based Reservoir Group, which owns Omega Well Monitoring Canada, has been bought by Australian testing services provider ALS Ltd. for approximately US$533 million. The seller is U.S. private equity firm SCF Partners, which has backed Reservoir since 2007. Calgary-based Omega, which five years ago became the founding member of Reservoir’s specialty wells services division, acquired Planet Services Inc., also of Calgary, earlier this month.
ALS announces acquisition of Reservoir Group
Posted on 16/07/13
ALS Limited (ASX: ALQ) (“ALS” or the “Company”) has agreed to acquire Reservoir Group (“Reservoir”) from SCF Partners, Reservoir management and other shareholders for a total consideration of approximately US$533 million (AU$579 million)
Reservoir is a global provider of specialist oil and gas services and equipment with a portfolio of market leading brands, operational experience in over 60 countries and long-term relationships with national and international oil companies, independent oil companies and global service providers to the oil and gas industry
The combined platform of Reservoir with ALS’ proven laboratory testing capabilities is expected to, over time, generate significant revenue synergies in a relatively fragmented and large market
The Reservoir acquisition is expected to be EPS accretive in FY2014 (pre- synergies)
Separately, ALS has also agreed to acquire Earth Data Pty Ltd (“Earth Data”) for AU$18 million. Earth Data is an Australian-based provider of niche sampling and analysis services to Australia’s oil, gas and coal industries
ALS announces that it has entered into an agreement to acquire Reservoir for US$533 million (9.6 x Reservoir’s FY2013 EBITDA). The transaction follows extensive due diligence undertaken by ALS on Reservoir as a part of an exclusive sale process.
Reservoir is a global provider of specialist oil and gas services and equipment that assists with the evaluation, development and optimisation of oil and gas discoveries. Reservoir operates five segments: Coring (49% of Reservoir’s FY2013 revenue); Laboratory Analysis (4% of Reservoir’s FY2013 revenue); Surface Logging (28% of Reservoir’s FY2013 revenue); Downhole Tools (4% of Reservoir’s FY2013 revenue) and Specialist Well Services (15% of Reservoir’s FY2013 revenue). Services and equipment provided by Reservoir assist with understanding, planning, accessing and optimising reservoir potential. Reservoir has a global presence with major hub operations in Aberdeen, Dubai, Houston and Edmonton, operational infrastructure in approximately 40 sites covering key oil and gas provinces and over 900 employees. The business enjoys long-term relationships with a strong customer base of national and international oil companies, independent oil companies and global service providers to the oil and gas industry.
The existing senior management team of Reservoir has committed to continue in the business and is rolling over approximately 50% of their equity in Reservoir into ALS shares, which will result in Reservoir senior management having a 1.5% pro forma shareholding in ALS. Multi-year conditional escrow arrangements have been put in place for the two largest management shareholders and retention bonuses have been agreed with all key Reservoir senior management.
Separately, ALS has also agreed to acquire Earth Data for approximately AU$18 million. Earth Data is an Australian-based provider of gas sampling and analysis services to Australia’s oil and gas industries, and safety monitoring sampling and analysis for fugitive emissions to Australian coal mines. Earth Data operates laboratories in Brisbane and the Hunter Valley, and employs approximately 60 staff.
Completion of the acquisitions of Reservoir and Earth Data are subject to limited conditions precedent and are both expected to complete by early August 2013. The acquisition of Reservoir is conditional on ALS securing U.S. antitrust approval and no material adverse change in Reservoir.
In the year ended 31 March 2013, Reservoir generated:
US$223 million in revenue;
US$55 million in EBITDA; and
US$44 million in EBITA.
The acquisition of Reservoir is expected to be EPS accretive to ALS in FY2014 (pre- synergies).
The acquisitions of Reservoir and Earth Data are consistent with ALS’ strategy to build an integrated global oil and gas solution, will significantly increase ALS’ presence in upstream oil and gas services, and will increase the Company’s exposure to attractive, high growth conventional and unconventional oil and gas end-markets.
Reservoir delivers ALS an immediate and significant presence in upstream oil and gas services focusing on technology-based evaluation, development and optimisation of hydrocarbon reservoirs. Reservoir has built a strong reputation of technology innovation and development in order to capture critical data throughout the oil and gas production life cycle: exploration, development, production, optimisation and abandonment.
ALS Managing Director and Chief Executive Officer, Greg Kilmister, said:
“Reservoir’s specialist services and equipment deliver high margin, technical and patented niche solutions. The business holds a leading position in the global coring market and is the leading surface logging provider in North America.”
“The acquisition will considerably broaden our capabilities in upstream oil and gas and will strongly complement our existing laboratory services. ALS will now be able to offer clients a more integrated end-to-end service, which will enhance our market position and ability to compete for incremental work across the hydrocarbon reservoir value chain.”
“Reservoir provides a portfolio of eight distinct diversified technical services to the global oil and gas markets, for both conventional and unconventional resources. The missing piece to Reservoir’s service offering is a strong capability in laboratory services. ALS brings that capability to the services suite and the combined businesses will provide a compelling offering. ALS intends to build at least three oil and gas hub laboratories, strategically placed to service the global market.”
Reservoir’s platform, combined with ALS’ proven laboratory testing capabilities, is expected to, over time, generate revenue synergies in a relatively fragmented and large market.
ALS expects that underlying net profit after tax for the half year ending 30 September 2013 will be in the range of AU$95 million and AU$105 million, including AU$4-5 million from the acquisitions of Reservoir and Earth Data (net of transaction and additional funding costs). This represents a mid-point decrease of 26% on the record underlying net profit after tax reported in H1 FY2013 and is in line with underlying net profit after tax reported in H1 FY2012 and H2 FY2013. Managing Director Greg Kilmister commented:
“Markets for the Company’s geochemical and coal services remain challenging, in an environment of falling commodity prices and a strong cost focus by most producers. Geochemical sample flows are down 33% YTD compared to the same period last year, with North America the most impacted as had been expected. EBIT margins however, remain in the targeted range as the Company takes advantage of the cost flexibility provided by its hub and spoke model.”
“Life Sciences YTD8 revenue is up 13% with encouraging signs of market conditions improving in the U.S. Coal YTD revenue is slightly down on last year in a market that continues to tighten and Industrial YTD revenue is slightly ahead of last year.”
This guidance assumes no material change in market activity levels and no material adverse events in ALS’ business activities for the remainder of first half FY2014.
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