8-K: Forum Energy Technologies Completes Acquisition of Variperm Holdings, Releases Pro Forma Financials

Forum Energy Technologies has released pro forma financial statements following its acquisition of Variperm Holdings, completed on January 4, 2024.

Summary

• Forum Energy Technologies acquired Variperm Holdings on January 4, 2024, making it a wholly-owned subsidiary.
• The acquisition involved a stock purchase agreement dated November 1, 2023.
• The purchase price included 2.0 million shares of Forum common stock and $150.3 million in cash, subject to adjustments.
• The cash portion of the acquisition was funded through cash on hand, borrowings under an ABL facility, and a seller term loan.
• Pro forma financial statements for the year ended December 31, 2023, were released, combining the financials of Forum and Variperm.
• Variperm's audited financial statements for 2022 and 2023 are included as an exhibit.
• The pro forma financials are unaudited and based on preliminary estimates, subject to change.
• The transaction is accounted for as a business combination using the acquisition method.
• The preliminary estimated fair value of consideration transferred was approximately $198.7 million.
• The pro forma combined revenue for 2023 was $868.0 million and the pro forma net loss was $14.1 million.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the acquisition is a positive strategic move, the pro forma net loss and high debt costs are concerning. The sentiment is neutral to slightly negative.

Positives

• The acquisition of Variperm expands Forum's operations and market presence.
• The pro forma financials provide a combined view of the two companies' performance.
• The transaction was completed as planned on January 4, 2024.
• The company has secured financing to complete the acquisition.

Negatives

• The pro forma combined company reported a net loss of $14.1 million for 2023.
• The seller term loan has a high interest rate, which could impact future profitability.
• The pro forma financials are based on preliminary estimates and are subject to change.
• The company incurred $5.5 million in one-time transaction-related costs.

Risks

• The pro forma financial statements are based on preliminary estimates and may differ materially from actual results.
• The integration of Variperm into Forum's operations may present challenges.
• The high interest rate on the seller term loan could impact future profitability.
• The final purchase price allocation may differ from the preliminary estimates.
• The company is exposed to fluctuations in commodity prices due to its customer base in the oil and gas sector.

Future Outlook

The pro forma financial information does not reflect any anticipated synergies, dis-synergies, operating efficiencies, or cost savings that may result from the transaction. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected.

Industry Context

The acquisition of Variperm by Forum is a strategic move to expand its presence in the oil and gas sector, a market that is subject to fluctuations in commodity prices and demand. This consolidation may be a response to industry trends towards larger, more diversified service providers.

Comparison to Industry Standards

• It is difficult to make a direct comparison to industry standards without knowing the specific peer group of Forum Energy Technologies.
• However, the pro forma revenue of $868 million would place the combined entity as a mid-sized player in the oilfield services sector.
• The net loss of $14.1 million indicates that the company needs to focus on improving profitability post-acquisition.
• The high interest rate on the seller term loan is a potential concern compared to companies with lower debt costs.
• Companies like Schlumberger, Halliburton, and Baker Hughes are much larger and more diversified, but the acquisition of Variperm may allow Forum to compete more effectively in specific niches.

Legal Proceedings

• The Company is a party to two legal proceedings. Although the ultimate result of the legal proceedings cannot be predicted with certainty, it is the opinion of the Company’s management that the outcome of these claims will not have a material effect on the financial position of the Company, its cash flows or net earnings.

Related Party Transactions

• The Company rents property from Nurco Holdings Ltd. which is owned by James Nurcombe (Company's Founder and former Chairman).
• Amounts due from Variperm Energy Services Partnership, a shareholder of the Company, are non-interest bearing with no fixed terms of repayment.

Stakeholder Impact

• Shareholders will see a change in the company's financial structure and performance due to the acquisition.
• Employees of both Forum and Variperm will be affected by the integration of the two companies.
• Customers may see changes in the products and services offered by the combined entity.
• Suppliers and creditors will be impacted by the new financial structure of the company.

Next Steps

• Forum will finalize the purchase price allocation for the acquisition.
• The company will integrate Variperm's operations into its existing business.
• Forum will monitor the performance of the combined entity and make adjustments as needed.
• The company will manage the debt obligations related to the acquisition.

Key Dates

Keywords

acquisition, pro forma, financial statements, Variperm Holdings, Forum Energy Technologies, merger, oil and gas, business combination, debt financing, purchase agreement