Business Context and Reporting Period
Company: National Energy Services Reunited Corp. (NESR)
Filing Date: November 12, 2017 (Report Date: November 16, 2017)
Event: Entry into Material Definitive Agreements for a Business Combination.
Context: NESR, a Special Purpose Acquisition Company (SPAC), has entered into agreements to acquire 100% of National Petroleum Services (NPS) and 100% of Gulf Energy S.A.O.C. (GES). The transactions are subject to shareholder approval via a proxy statement to be filed in the coming weeks. Upon approval, funds from the NESR trust will be released to complete the acquisitions.
Key Financial Metrics and Transaction Terms
NPS Transaction (100% Acquisition):
- Total Consideration: $442.8 million in cash plus 11,318,827 NESR ordinary shares (valued at $10.00/share).
- Receivable Proceeds: Selling stockholders elected to receive $48 million in advance from receivables.
- Cash Structure: $150 million paid by Hana Investments Co. WLL (HIC) in a first closing; remaining $292.8 million paid by NESR upon shareholder approval.
- Earn-Outs: Potential additional cash of $7.57 million (contract renewal) and up to 3.34 million NESR shares based on 2018 EBITDA thresholds.
- Ticking Fee: If not closed by December 31, 2017, NESR incurs a daily fee of approximately $147,300 on unpaid cash consideration.
Gulf Energy Transaction (100% Acquisition):
- Valuation: $184.8 million for 61% stake (via stock exchange at $10.00/share).
- SV3 Contribution: 27.3% stake contributed in exchange for NESR shares valued at $10.00/share (SV3 originally paid $68.25 million for this stake).
- Sponsor Acquisition: 11.7% stake acquired by Sponsor for $29.2 million (financed via private loans) and assigned to NESR in exchange for NESR assuming the debt.
- Debt Adjustment: Purchase price reduced if Net Debt exceeds $47.2 million at closing.
Forward Purchase Agreement (Proposed):
- Capacity: Up to $150 million with a Backstop Provider.
- Minimum Commitment: $70 million at $10.00/share to replace redeeming shareholder capital.
- Working Capital: Up to $80 million available for M&A and working capital (priced at $11.244/share).
Material Changes and Strategic Shifts
This filing represents a fundamental change in NESR's status from a shell company holding trust funds to an operating entity in the oilfield services sector. The company is pivoting to acquire two independent oil field service companies operating in the Middle East and North Africa (MENA) region. The transaction structure involves a complex mix of cash, stock exchanges, and debt assumption, significantly altering the company's capital structure and shareholder base.
Guidance, Risks, and Contingencies
Management Commentary & Outlook: Management intends to hold investor presentations shortly after filing. The Board approved the transactions based on a fairness opinion from JP Morgan. The combined entity aims to leverage the operational capabilities of NPS and GES.
Key Risks and Contingencies:
- Shareholder Approval: The transactions are contingent on an affirmative vote by a majority of NESR shareholders.
- Redemption Risk: Funds available for the deal depend on the number of shareholders redeeming their shares from the trust.
- Timing Penalties: Failure to close by December 31, 2017, triggers significant daily "ticking fees."
- Forward-Looking Statements: Actual results may differ due to risks including the ability to effect the combination, legal proceedings, disruption of operations, and economic factors.
- Debt Assumption: NESR will assume loan contracts related to the Sponsor's acquisition of Gulf Energy shares, with interest rates ranging from 0% to 14.4%.
Investor Verification Checklist
- Verify the final terms of the Proxy Statement and the outcome of the shareholder vote.
- Confirm the final redemption rate of NESR shareholders to assess available trust capital.
- Review the definitive Forward Purchase Agreement to confirm the Backstop Provider's commitment and pricing.
- Monitor the "Ticking Fee" accrual if the closing date extends beyond December 31, 2017.
- Examine the specific EBITDA thresholds required to trigger the NPS equity earn-outs.
- Assess the impact of the assumed debt (up to 14.4% interest) on the combined entity's liquidity.