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SECURE Energy and Tervita merge to create midstream infrastructure and environmental solutions business

Secure Energy Services Inc. and Tervita Corporation logos

SECURE Energy Services Inc. and Tervita Corporation have announced a merger to create a stronger midstream infrastructure and environmental solutions business that is expected to provide enhanced free cash flow generation resulting from greater scale and significant annual integration cost savings of $75 million, unlocking value for all shareholders.

The combined company will have an implied total enterprise value of approximately $2.3 billion. Upon completion of the transaction, SECURE and Tervita shareholders will own approximately 52% and 48%, respectively, of the combined company.

The companies have entered into an arrangement agreement to combine in an all-share transaction pursuant to which SECURE will acquire all of the issued and outstanding common shares of Tervita on the basis of 1.2757 common shares of SECURE for each outstanding Tervita Share. The combined company will operate as SECURE and remain listed on the Toronto Stock Exchange as TSX: SES. The combined company will remain headquartered in Calgary, Alberta.

Transaction Highlights

  • Highly complementary midstream infrastructure asset bases and environmental service lines provide for enhanced scale, utilization, efficiencies, and expanded services for the combined company's customers; 
  • Significant estimated annual integration cost savings of $75 million are expected to be realizable within 12 to 18 months after closing; 
  • Expected to be immediately accretive to cash flow from operations and discretionary free cash flow per share for all shareholders of the combined company; 
  • Significantly improved cost structure to serve our growing and consolidating customer base through the full business cycle; 
  • Strong pro forma financial position with attractive discretionary free cash flow generation expected to reduce debt and help achieve the combined company's target debt to EBITDA ratio of less than 2.5x, which is expected to be achieved within two years of closing; 
  • Enhanced scale anticipated to provide greater access to capital markets and the ability to partner with our customers to execute on a strong pipeline of organic growth projects; 
  • Combines two strong corporate cultures driven by highly talented teams with shared commitments to environmental, social and governance ("ESG"), safety, performance, customer service and profitability; and 
  • Elevates position to advance and deliver on environmental and social sustainability initiatives for the combined company and our customers.

Rene Amirault, Chairman, President, and Chief Executive Officer of SECURE, stated "We are pleased to announce the combination of these two great companies, resulting in the creation of a larger scale midstream infrastructure and environmental solutions business. Together, our highly talented teams will be better positioned to serve our customers, optimize existing infrastructure assets and operations and to drive greater discretionary free cash flow to the bottom line. We look forward to working with the Tervita Board of Directors and team, and we are excited about the value creation opportunities of this Transaction for all stakeholders."

"The merger results in the combination of complementary midstream infrastructure asset bases and environmental service lines, providing for enhanced scale and relevance, benefiting our shareholders, customers, suppliers, and the communities in which we operate," said John Cooper, President and Chief Executive Officer of Tervita. "In SECURE, we have a partner who is equally committed to an employee centric culture with a focus on ESG, safety, performance and customer value, with whom we are eager to join forces to leverage our combined resources and strengths, which will drive a successful integration."

Strategic Rationale

The combined company is expected to be stronger, more capable, more efficient and more profitable than either company on its own.

  • Greater Capabilities to Serve Customers
    • Combined complementary midstream infrastructure asset bases and environmental service lines of SECURE and Tervita expected to result in increased size and scale, utilization, efficiencies, and expected enhancement of services and capabilities for the combined company's customers. 
  • Greater Scale and Capital Market Relevance
    • Creates a larger, more investable entity for all equity and debt holders, providing greater liquidity and scale to the combined company's investors. 
    • Combined market capitalization of approximately $1.0 billion and enterprise value of approximately $2.3 billion, based on SECURE's share price as at March 8, 2021 and the exchange ratio pursuant to the Transaction, with pro forma annual Adjusted EBITDA of greater than $400 million, including expected annual integration cost savings.
  • Sizeable Integration Cost Savings Enhance Opportunity for Value Creation
    • Annual integration cost savings estimated at $75 million (representing ~22% of pro forma 2020 Adjusted EBITDA) expected to be realizable in 12 to 18 months after closing. 
    • Integration cost savings consist of general and administrative cost reductions, optimization of field, asset and operational overhead and corporate savings. 
  • Immediately Accretive to All Shareholders and Strong Discretionary Free Cash Flow
    • Transaction expected to be immediately accretive to cash flow from operations and discretionary free cash flow per share. 
    • Strong discretionary free cash flow profile of the pro forma entity and integration cost savings realization are anticipated to be directed to maximizing shareholder returns through debt repayment, followed by return of shareholder capital and investment in strategic, high-return growth projects. 
    • The combined company expects to maintain SECURE's quarterly dividend of 0.75 cents ($0.0075) per share, subject to the approval of the combined company's Board of Directors. 
  • Strong Balance Sheet and Financial Position
    • Pro forma as of December 31, 2020, the combined company will be well capitalized with a pro forma net debt to 2020 Adjusted EBITDA ratio of 3.1x, inclusive of $75 million of annual integration cost savings. 
    • In conjunction with the Transaction, SECURE has entered into a binding agreement with ATB Financial (as administrative agent), National Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, and Bank of Montreal, collectively acting as co-lead arrangers and joint bookrunners, to provide the combined company with committed financing by way of a $725 million three-year credit facility available at closing of the Transaction (the "Credit Facility"). The Credit Facility will be utilized to replace and repay SECURE's existing first and second lien credit facilities and Tervita's first lien credit facilities. Tervita's second lien notes will remain outstanding and enable capital structure optimization while maintaining adequate liquidity. 
    • The combined company is well positioned with the right assets and the right people in place to respond to and capitalize upon increasing industry activity with minimal additional investment.
  • Enhanced ESG Leadership
    • Commitments to ESG leadership will remain core to the combined company. Leading safety practices, strong governance, minimizing environmental impacts, and making positive contributions in the communities where we live and work will drive the combined company's ESG initiatives. 
    • The combined company will continue to pursue the long-term climate targets established by SECURE of reducing carbon intensity in half by 2030 and achieving net zero emissions by 2050. 
    • The combined company's talented employees will drive sustainability priorities and performance.
  • Increased size and scale of the pro forma entity is expected to improve access to capital markets and asset coverage. 
  • Expect to achieve target of less than 2.5x debt to EBITDA ratio within two years of closing, supported by integration cost savings and a strong discretionary free cash flow profile. 
  • Both companies prioritizing debt repayment in 2021 before the Transaction is expected to close.

Governance and Leadership

The combined company will be led by a proven management team that reflects the strengths and capabilities of both organizations. Rene Amirault will serve as Chief Executive Officer, John Cooper will support the transition as Chief Integration Officer, Chad Magus will serve as Chief Financial Officer, and Allen Gransch as Chief Operating Officer of Midstream. Additional senior leaders will be selected from the teams at both organizations and will be determined before the close of the Transaction.

The Board of Directors will consist of eight members, with equal representation from the existing SECURE and Tervita Board of Directors. Grant Billing, current Chairman of Tervita, will be Chairman of the combined company. Rene Amirault will also serve on the Board of Directors of the combined company.

Company info

Bow Valley Square 2
3600, 205 5th Ave SW
Calgary, AB
CA, T2P 2V7

Website:
secure-energy.com

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