Dril-Quip, Inc. (NYSE: DRQ) and Innovex Downhole Solutions, Inc. have recently announced a definitive agreement to merge in an all-stock transaction, creating a unique energy industrial platform. Upon closing, Dril-Quip stockholders will own approximately 52% and Innovex stockholders will own approximately 48% of the combined company on a fully diluted basis.
The combination is set to bring substantial strategic and financial benefits, including substantial and immediate earnings and free cash flow accretion, with anticipated pro forma adjusted EBITDA margins in excess of 20%, including synergies. The companies expect to achieve annual cost synergies of approximately $30 million within 24 months after the transaction closes, with around 50% of the annual cost synergies expected to be realized within 12 months.
In terms of financial performance, the pro forma company is anticipated to have a net cash position of $99 million at year-end 2023. Furthermore, the combined company's revenue is expected to exceed $1.0 billion, with $221 million in adjusted EBITDA including synergies in fiscal 2023 on a pro forma, full-year combined basis. This represents an improvement from Dril-Quip's standalone revenue of $478 million and Innovex's revenue of $556 million in 2023.
The combined company is expected to derive approximately 56% of its revenue from international and offshore markets and approximately 44% from the North American onshore markets. The pro forma adjusted EBITDA percentage is projected to be 21%, indicating an enhancement from Dril-Quip's 12% and Innovex's 24% in 2023.
The transaction is anticipated to be immediately accretive to earnings and free cash flow. In addition, the combined company's leadership team is expected to include executives from both Dril-Quip and Innovex, with Adam Anderson, the current CEO of Innovex, set to become the CEO of the combined company upon closing.
The companies have also outlined various strategic benefits, including the acceleration of marketing of Dril-Quip’s leading onshore Canadian wellhead business (Great North) in the U.S. onshore market through Innovex’s operational and sales infrastructure, and the growth of Innovex’s broad downhole tools portfolio across the large Canadian onshore market through Dril-Quip’s strong Canadian footprint and customer relationships.
The transaction is expected to close in the third quarter of 2024, subject to customary closing conditions including regulatory approval and approval by Dril-Quip’s stockholders.
Today the company's shares have moved 1.2% to a price of $24.0. Check out the company's full 8-K submission here.
