8-K: Archrock to Acquire Natural Gas Compression Systems, Inc. for $357 Million

Archrock, Inc. announces a definitive agreement to acquire Natural Gas Compression Systems, Inc. and NGCSE, Inc. for approximately $357 million in cash and stock.

Summary

• Archrock, Inc. (AROC) will acquire Natural Gas Compression Systems, Inc. (NGCSI) and NGCSE, Inc. (NGCSE) for approximately $357 million.
• The transaction includes approximately 351,000 horsepower of compression assets, with 316,000 operating horsepower and 35,000 horsepower in backlog.
• The acquisition is expected to be immediately accretive to Archrock's earnings per share and cash available for dividend per share by the end of 2025.
• The purchase price represents a transaction multiple of less than 7.0x expected run-rate of annualized July 2025 adjusted EBITDA, exclusive of any anticipated synergies.
• Archrock intends to fund the $298 million cash portion with available capacity under its ABL credit facility and issue up to 2.312 million new Archrock common shares to the sellers.
• The transaction is expected to close in the second quarter of 2025, subject to customary closing conditions.

Sentiment

Score: 8

Explanation: The document expresses a positive outlook on the acquisition, highlighting strategic and financial benefits. The transaction is expected to be accretive and aligns with industry trends.

Positives

• The acquisition aligns with Archrock's focus on large horsepower compression with blue-chip customers.
• It complements and deepens Archrock's existing operations in the Permian Basin.
• It expands Archrock's electric motor drive compression capabilities as customer demand for low carbon solutions continues to grow.
• The transaction is expected to increase Archrock's Permian compression capacity by 10%, to approximately 2.5 million horsepower.
• The transaction is expected to be immediately accretive to Archrock's earnings per share and cash available for dividend per share by the end of 2025.

Risks

• The failure to complete the proposed transaction or to realize the anticipated accretion, dividend growth and coverage, potential synergies and other anticipated strategic benefits of the transaction within the expected time frames or at all.
• The possible diversion of management time on transaction-related issues.
• The risk that the requisite approvals to complete the transaction will not be obtained.
• Changes in customer, employee or supplier relationships of Archrock or NGCS.
• Local, regional and national economic and financial market conditions and the impact they may have on Archrock, NGCS and their respective customers.
• Future regulatory conditions, including changes in tax laws.
• Conditions in the oil and gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas or a sustained decrease in the price of oil or natural gas.
• Changes in economic conditions in key operating markets.
• The financial condition of Archrock's or NGCS's customers.
• The failure of any customer of Archrock or NGCS to perform its contractual obligations.
• Changes in safety, health, environmental and other regulations.
• The effectiveness of Archrock's control environment, including the identification of control deficiencies.
• Estimated transaction and integration costs associated with the proposed transaction.
• The retention of certain key employees of NGCS.
• Archrock's ability to successfully integrate the operations of NGCS.
• Risks associated with the concentration of Archrock's significant customers.
• Volatility of Archrock's common stock.
• The risk of dilution of Archrock's common stock.
• Provisions in Archrock's governing documents that may make a change of control more difficult and Archrock's ability to issue preferred stock with terms that could adversely affect the voting power and value of Archrock's common stock.

Future Outlook

The transaction is expected to be immediately accretive to Archrock's earnings per share and cash available for dividend per share by the end of 2025.

Management Comments

• Brad Childers, President and Chief Executive Officer of Archrock, stated that the acquisition enhances their position as a premier provider of natural gas compression services and increases scale and expands customer relationships.
• A.J. Yuncker, President and Chief Executive Officer of NGCSI, believes their customers and employees will benefit from Archrock's scale, experience, and financial strength.

Industry Context

The acquisition aligns with the industry trend of consolidating assets in key shale basins and increasing focus on lower carbon solutions through electric motor drive compression.

Comparison to Industry Standards

• The transaction multiple of less than 7.0x expected run-rate of annualized July 2025 adjusted EBITDA is within the typical range for midstream asset acquisitions.
• The focus on large horsepower compression and blue-chip customers is consistent with strategies employed by other leading compression service providers.

Stakeholder Impact

• Shareholders are expected to benefit from increased earnings per share and cash available for dividend per share.
• Customers are expected to benefit from the combined company's scale, experience, and financial strength.
• Employees of NGCS are expected to join the Archrock team.

Next Steps

• The transaction is expected to close in the second quarter of 2025, subject to customary closing conditions.

Key Dates