Per the press release, Casedhole is a leading multi-regional, independent provider of cased-hole wireline and other complementary services for energy producers in the United States. With 12 district locations, Casedhole provides premium services in the most complex and demanding operating environments focusing on oily and liquids-rich basins.
After hours the stock jumped 1-3%, but it still remains down for the day. When the sector turns, this would be the top pick. The company remains a cash flow machine with top of the line margins. The $22OM credit line being tapped to pay for this deal will quickly be paid off via profits.
Details on the deal:
- The addition of Casedhole to be immediately accretive to C&J's 2012 earnings and cash flow per share.
- The transaction is expected to close prior to June 8, 2012 upon satisfaction of customary closing conditions.
- An expanded geographic presence in 10 of the most active U.S. areas, including the Williston and Uinta Basins and the Marcellus, Utica, Avalon and Bone Springs shale plays where C&J currently does not have a presence;
- A loyal and expanding customer base of leading E&P operators which is largely non-overlapping and complementary to C&J's existing customer base;
- A seasoned management team with extensive large-cap oilfield services management experience, as well as a full roster of skilled engineers and field-level personnel that bring extensive technical expertise and domestic and international basin knowledge;
- Premium, custom-built assets, including 58 wireline units with an average age of less than three years, compared to an industry average of 10 to 15 years, and 11 pumpdown units that were added during the past five months;
- Industry leading EBITDA margins and significant revenue growth that since June 2009 has outpaced the U.S. land rig count growth by more than 8 times. Casedhole's trailing 12 month revenue as of March 31, 2012 was $156.8 million, with substantial equipment additions occurring throughout the 12 month period.
- C&J is funding the purchase of Casedhole through $220 million drawn from the Company's senior secured revolving credit facility, with the remainder paid from cash on hand. The credit facility was increased to $400 million from $200 million in connection with the signing of the definitive purchase agreement and was led by Bank of America and Wells Fargo.
Besides the obvious benefit of an accretive deal, the exposure to new basins and shales with new customers could be huge for CJES down the road. The company isn't much more than an Eagle Ford play now and expansion into the Marcellus, Utica, and Williston plays to name a few could be hugely positive.
The stock isn't likely to act all that well tomorrow with more follow up from the Haliburton (HAL) margin problems, but it remains one of the best deals in the market sub $20.
Update 3pm: From the conference call, the company confirmed that guar prices are not impacting margins to any major extent. In fact, the CEO mentioned being surprised by the Haliburton announcement.
The revenue run rate for Casedhole was $50M in Q112 and EBITDA margins have hit 30%. The deal appears very positive, but the market could only give it $.10 today. The stock is now down $.45 in the last 2 days even though the company disclaimed the HAL weakness and announced a bullish acquisition.
Stock remains absurdly cheap, but for now the market just doesn't care. No matter what the company says, the market completely discredits it.
Disclosure: Long CJES. Please review the disclaimer page for more details.