Business Context and Reporting Period
This Form 8-K, dated December 29, 2022, reports on material definitive agreements entered into by Cactus, Inc. (the "Company") on December 30, 2022. The filing details a proposed merger with HighRidge Resources, Inc. (the "Target"), which indirectly owns FlexSteel Pipeline Technologies, Inc. and FlexSteel LTIP LP. The transaction is expected to close in the first fiscal quarter of 2023, subject to customary conditions.
Key Financial Metrics and Transaction Terms
- Purchase Price: $621,160,000 on a debt-free, cash-free basis, subject to working capital and other customary adjustments.
- Earn-Out Provision: An additional cash payment of up to $75,000,000 may be paid in 2024 if the Target's aggregate gross revenue for the 18-month period commencing January 1, 2023, exceeds $545,000,000. The maximum earn-out is triggered if revenue reaches or exceeds $649,000,000.
- Escrow Deposit: The Company will deposit $6,250,000 with an escrow agent at closing to fund post-closing adjustments.
- Financing: The Company has secured a commitment letter from JP Morgan Chase Bank, N.A. for a senior secured credit facility (Bridge Facility) of up to $375,000,000 with a maturity of 364 days (extendable by three months). The Company intends to fund the transaction using a mix of cash, debt, and/or equity.
- Financial Statements: This filing does not provide specific revenue, profit, cash flow, margin, or liquidity metrics for the Company or the Target. The filing text does not provide a clear value for these operational metrics.
Material Changes and Agreements
The primary material change is the entry into the Merger Agreement, which will result in the Target becoming a wholly-owned subsidiary of the Company. Additionally, on December 29, 2022, Cactus Wellhead, LLC (the operating subsidiary) entered into a Second Amended and Restated Limited Liability Company Operating Agreement. This amendment clarifies that the LLC may make non-pro rata distributions to its members as an interim step to fund the acquisition.
Outlook, Risks, and Contingencies
- Closing Conditions: The merger is subject to customary conditions, including the absence of legal impediments, expiration of the Hart-Scott-Rodino (HSR) Act waiting period, accuracy of representations and warranties, compliance with covenants, and no material adverse change in the Target's business.
- Termination Rights: The agreement includes termination rights, including a "drop-dead" date of April 30, 2023, if the merger has not occurred by that time.
- Risk Factors: Forward-looking statements regarding the consummation of the merger are subject to inherent risks and uncertainties. The Company disclaims any duty to update this information other than as required by law.
- Insurance: The Company has obtained a representation and warranty insurance policy to cover certain breaches by the Target, subject to retention amounts and exclusions.
Investor Verification Checklist
- Verify the final purchase price after working capital and debt adjustments are calculated at closing.
- Confirm the satisfaction of the HSR Act waiting period and other regulatory approvals.
- Monitor the Target's gross revenue performance against the $545,000,000 and $649,000,000 thresholds to determine the potential earn-out liability.
- Review the final terms of the Bridge Facility and any additional equity or debt financing required to fund the transaction.
- Assess the impact of the non-pro rata distribution provision in the amended LLC agreement on existing member interests.