Get ready for even more mergers and acquisitions activity.
That’s the main takeaway from Dykema’s 14th annual M&A Outlook Survey, which was released last week.
The Detroit-based law firm said that nearly two-thirds of executives questioned believed mergers will get stronger in the next 12 months – the highest level of optimism in the survey’s history. Those with negative sentiment dropped to 15 percent.
Last year only 39 percent of those surveyed were positive about the M&A market.
Three-quarters of respondents said they would be involved in an acquisition in the next 12 months, up from 68 percent in 2017.
The survey found that automotive, energy and consumer products were expected to be favored deal-making businesses with healthcare and technology falling in behind them.
Stephen Sayre, co-leader of Dykema’s mergers and acquisitions sub-practice in Chicago, said dealmaking in automotive could be vigorous as the industry “hits a wave of disruption with the rise of connected and driverless cars.”
Executives weren’t as go-go on large transactions, with only 26 percent anticipating growth for deals worth more than $100 million. A plurality of respondents also believe that Democratic victories in Congress would be a favorable outcome for M&A activity.
In Texas, dealmaking involving Texas lawyers slowed a bit, but was still brisk. There were 13 transactions worth $6.14 billion last week, versus 18 transactions valued at $18.39 billion the previous week.
Thirteen law firms in Texas and 126 Texan lawyers were involved in dealmaking, versus 15 law firms and 131 lawyers the week before. There were 11 M&A transactions valued at $5.122 billion and 2 capital markets transactions worth $1.018 billion.
The highlights were a power transmission merger (that brought together several current and former Vinson & Elkins lawyers), another simplification transaction in the energy midstream industry and two large private equity exits. The oil and gas, telecommunications and healthcare sectors all saw action.
There were also three IPO updates: One that was resurrected and announced its hoped-for price range, one in the oil and gas industry that was postponed and one that scaled back and made it through.
M&A AND PRIVATE EQUITY INVESTMENTS
Five firms work on Oncor’s $1.275B InfraREIT acquisition
As The Texas Lawbook reported last week, four law firms in Texas assisted on Oncor Electric Delivery Co.’s Oct. 18 purchase of InfraREIT Inc. for $1.275 billion.
Texas specialists included partner Jo Ann Biggs and counsel Jaren Taylor on energy regulatory matters; partner Jim Meyer (tax); partner Chris Dawe (finance); and partner David D’Alessandro and associate Steven Oyler (executive compensation/benefits).
Gibson, Dunn & Crutcher represented InfraREIT, including partner Douglas Rayburn with assistance from partner Jeffrey Chapman, associates Paige Lager and Eric Pacifici and associate Krista Hanvey on benefits, all of Dallas.
Sidley Austin assisted InfraREIT and its units with respect to various debt and collateral matters relating to the acquisition, including partners Alison Boren and Banks Bruce and associate Justin Stone.
The in-house team for InfraREIT included Stacey Doré, general counsel of InfraREIT affiliate Hunt Utility Services, and Krysta Edwards, Hunt Utility’s assistant general counsel. InfraREIT went public in 2015.
Doré joined Hunt in 2016 after more than eight years at Energy Future Holdings, where she was general counsel for four-and-a-half years. She was a lawyer in the litigation section at Vinson & Elkins for more than 10 years. Doré also served as co-chief restructuring officer at EFH, helping guide the state’s largest power utility through Chapter 11 bankruptcy and reorganization.
InfraREIT’s conflicts committee was represented by Hunton Andrews Kurth partner Michael O’Leary, John Clutterbuck, Taylor Landry, Tom Popplewell, Robert McNamara, Oliver Fankhauser and Leslie Slaughter.
White & Case advised Oncor’s 80 percent owner Sempra Energy, which is based in San Diego.
The New York-based team included Houston partner Charlie Ofner, who joined White & Case from Andrews Kurth in February, and associate Ted Seeger, who joined in July from Paul Hastings.
Lazard was Sempra’s financial advisor and Barclays assisted Oncor.
The purchase includes the assumption of InfraREIT’s debt, which amounted to $945 million as of June 30.
The deal requires clearance from the Public Utility Commission of Texas, the Federal Energy Regulatory Commission, Hart-Scott-Rodino and InfraREIT shareholders. The transaction also includes a “go-shop” provision in which InfraREIT can solicit superior bids.
Sempra and Oncor expect to close the transaction by mid-2019.
Oncor is Texas’ largest electricity transmission and distribution company. Its onetime parent, Energy Future Holdings, filed for Chapter 11 restructuring in 2014, but its 80 percent ownership of Oncor wasn’t part of the bankruptcy proceedings. Oncor was sold to Sempra earlier this year for $11 billion.
Oncor CEO Allen Nye – who previously was the company’s general counsel – said the purchase of InfraREIT gives Oncor access to high-quality transmission assets adjacent to its service territory.
Nye’s father was Erle Nye, the former CEO of TXU. The younger Nye graduated from St. Mary’s School of Law in 1993. He practiced energy regulatory law at Hunton & Williams in Dallas and then Vinson & Elkins before joining Oncor as general counsel in 2010.
In fact, many of the lawyers involved – Stacey Doré, Nye and Oncor’s general counsel Matt Henry and the Gibson Dunn team — all used to be partners together at V&E. Henry joined Oncor this year from V&E.
Baker Botts, Akin Gump aid on Valero’s $950M acquisition of MLP
In yet another simplification transaction in the midstream industry, San Antonio oil refiner Valero Energy Corp. announced Oct. 18 that it had agreed to purchase Valero Energy Partners for $950 million in cash.
The merger is the eighth largest business deal in San Antonio’s history, according to the San Antonio Business Journal (the largest was Clear Channel Communications’ sale to Bain Capital Partners and Thomas H. Lee Partners in 2007 for $26.7 billion).
The deal gives the two an enterprise value of $2.26 billion.
Valero Energy Partners public unitholders will receive $42.25 for each common unit.
Baker Botts advised Valero Energy Corp. with a team that included partners Jeremy Moore and Joshua Davidson, senior associate Eileen Boyce and associates Jude Dworaczyk and Ieuan List. The tax partner on the deal was Steve Marcus.
In-house counsel on the deal was executive VP and general counsel Jay Browning from Valero Energy Corp. and vice president and secretary Steve Gilbert from Valero Energy Partners.
Akin Gump Strauss Hauer & Feld counseled Valero Energy Partners’ conflicts committee.
Valero Energy Corp.’s Delaware counsel was Richards, Layton & Finger.
J.P. Morgan Securities provided financial advice to Valero while Jefferies did so for the conflicts committee of Valero Energy Partners’ general partner.
Valero Energy Corp. created Valero Energy Partners less than five years ago to hold its pipeline and storage terminal assets in Texas, Oklahoma, Louisiana and Tennessee that support its refineries. It went public on Dec. 11, 2013.
Valero said the deal doesn’t require a stockholder vote and is expected to close as soon as possible.
Tortoise MLP Fund Inc. is the largest institutional investor in Valero Energy Partners with more than 6 million shares, which will be worth almost $255.5 million under the deal, the business journal reported.
San Antonio peer NuStar Energy and its general partner NuStar GP Holdings merged in July, giving them an enterprise value of $7.9 billion.
Bracewell advises EnCap-backed Sabalo on $950M sale to Earthstone
Bracewell said it represented Sabalo Holdings’ Sabalo Energy on its sale to the Woodlands-based Earthstone Energy Inc. for $950 million.
Corpus Christi-based Sabalo is backed by EnCap Investments.
Partners J.J. McAnelly and Troy Harder led the Bracewell team, which included partners Lance W. Behnke (who offices out of Seattle and Houston), Charles H. Still Jr., Austin T. Lee and Scott C. Sanders.
Jones & Keller in Denver counseled Earthstone while Richards, Layton & Finger was Delaware counsel for its special committee.
RBC Capital Markets was Earthstone’s financial advisor while Stephens Inc. was an independent financial advisor and provided a fairness opinion to its special committee.
Jefferies was Earthstone’s placement agent on a $225 million preferred stock offering to help fund the deal. Jefferies also was Sabalo’s financial advisor.
The deal consists of $650 million in cash and $300 million in stock at $9.28 per share. The stock component consists of 32.3 million shares of Earthstone Class B common stock and corresponding membership interests of Earthstone Energy Holdings.
The purchase price could be increased by $26 million in cash to account for 1,330 acres acquired after the effective date of the Sabalo acquisition.
Sabalo Energy’s assets include producing and non-producing oil and gas assets in the northern Midland Basin of West Texas.
As part of the deal, Sabalo agreed to acquire certain well-bore interests held by Shad Permian that were part of a drilling joint venture between Sabalo and Shad.
Earthstone will end up with 20,800 net acres in the Midland Basin and an estimated 488 gross operated horizontal drilling locations and 349 gross non-operated horizontal drilling locations.
Sabalo’s and Shad’s combined average estimated production in September 2018 was 11,200 barrels of oil equivalent per day, 83 percent of which was oil.
Earthstone president Robert J. Anderson said in a statement that the Sabalo acquisition is an important milestone in the company’s ongoing transformation into a top Midland Basin-focused operator.
Jones Day, Winston advise on One Equity’s Strike sale to Sentinel
Jones Day said Oct. 19 that Dallas partners Alain Dermarkar and Bobby Cardone are advising One Equity Partners and Strike Capital on the sale of a majority interest in Strike to blank check company Sentinel Energy Services Inc.
The transaction will launch Strike as a publicly traded company with an expected initial enterprise value of $854 million. It’s expected to close in the first quarter.
J.P. Morgan Securities was Strike’s financial advisor. Citigroup Global Markets was Sentinel’s private placement agent, financial advisor and capital markets advisor.
Strike owns and operates Strike LLC, a North America infrastructure and integrity services and projects business.
Strike equityholders, including One Equity, will continue to own a significant equity position in the company. Closing is expected in the first quarter.
As part of the deal, Sentinel affiliate CSL Energy Holdings III Corp. and Invacor Pipeline and Process Solutions will transfer all of the membership interests in Pipelogic Services before closing to Sentinel in exchange for an undisclosed amount of Sentinel common stock.
After closing, Sentinel will contribute the membership interests to a Strike unit in exchange for an undisclosed number of Strike units.
Strike claims it will be the largest pure-play pipeline and facilities infrastructure and integrity services provider across U.S. onshore energy markets and transmission corridors.
The company will be led by Strike’s management team, including founder and CEO Steve Pate. Sentinel chairman Andrew Gould and CEO Krishna Shivram will be on its board, with Gould as chairman, along with Pate, Charles Leykum, Lee Gardner, Marc Zenner and Jon Marshall.
Strike secured a $150 million private-investment-in-public-equity, or PIPE, commitment at $10 per share, including $110 million from Fidelity Management and Research Co. and $40 million from CSL Capital Management.
The combination values Strike at a 5.4 times 2019 projected adjusted Ebitda implying a 32 percent discount to publicly traded peers, the companies said.
Cash proceeds from the combination, including the PIPE investment, is expected to be up to $477 million. They will be used to pay $124 million to existing shareholders with the rest used to pay off the existing term loan and revolver facilities.
The parties said the resulting strong balance sheet with net cash on hand and $200 million of available liquidity will allow Strike to take advantage of several growth opportunities in the robust pipeline infrastructure services market and provide working capital needs.
Before closing, Sentinel is expected to re-domesticate from the Cayman Islands to Delaware.
Between 2007 and 2017, Strike generated compound annual revenue growth of more than 35 percent with estimated 2018 revenues of $1.8 billion.
Sentinel was formed in late 2017 to enter into a combination with one or more businesses focused on the energy services and equipment sectors. It went public in November 2017.
Gould previously was chairman and CEO of Schlumberger and chairman of BG Group before its sale to Royal Dutch Shell. Shivram previously was vice president and treasurer of Schlumberger and also CFO and interim CEO of Weatherford.
Kirkland, Porter Hedges aid on Nine’s $493M purchase of Magnum
Houston oilfield services company Nine Energy Service said Oct. 15 that it’s buying Magnum Oil Tools for $493 million.
Also pitching in were capital markets partners Matt Pacey and Lanchi Huynh and associates Sara-Ashley Moreno, Mark Kam, Caleb Lowery and Logan Weissler and tax partner Mark Dundon and associate Joe Tobias.
Porter Hedges represented Magnum. The team was led by partner Corey Brown with assistance from partners Joe Morrel, Craig Bergez and Nick Nicholas, counsel Beverly Young, partners Jonathan Pierce and Heather Hatfield and associates Adam Nalley and Nickie Tran.
J.P. Morgan Securities provided financial advice to Nine and FMI did so for Magnum.
The price tag includes $334 million in cash and 5 million shares of Nine common stock valued at $159 million. The terms include the potential for additional future contingent payments. Magnum doesn’t have any debt.
The transaction has to clear regulators. Nine intends to fund the cash portion of the purchase price with the net proceeds of a notes offering, borrowings under a new credit facility and cash on hand.
Nine CEO and president Ann G. Fox said in a statement that Magnum will propel Nine to a more balanced profile of completion tools, creating excellent barriers to entry while building a business that is less labor and capital intensive and more free cash flow generative.
Corpus Christi-based Magnum provides downhole technology to the global oil and gas industry, including dissolvable and composite frac plugs. It has operating facilities in the Permian, Scoop/Stack, Bakken, Niobrara, Haynesville, Marcellus and Utica basins as well as in Canada. Its CEO and founder is Lynn Frazier.
Nine offers completion and production solutions throughout North America with facilities in the Permian, Eagle Ford, Scoop/Stack, Niobrara, Barnett, Bakken, Marcellus and Utica basins and throughout Canada.
SCF Partners-backed Nine raised $161 million in a public offering in January with Vinson & Elkins advising it and Kirkland & Ellis counseling the underwriters.
V&E advises Range on royalty lease sale for $300M
Vinson & Elkins said it advised Range Resources Corp. on its agreement to sell a proportionately reduced 1 percent overriding royalty on its Washington County, Pennsylvania, leases for $300 million.
The corporate team was led by partner Bryan Loocke with assistance from associates Cesar Leyva and Josh Rocha. Also advising were partner Todd Way, senior associate Julia Pashin and associate Megan James on tax and partner Larry Nettles on environmental.
J.P. Morgan Securities was Range’s financial advisor.
Fort Worth-based Range announced the sale Oct. 15. It said the properties encompass 300,000 net surface acres that produced 1.7 Bcfe net per day in the second quarter.
Range said the net proceeds will be used to reduce debt by an expected 7 percent that will lower annualized interest expense by about $15 million, resulting in a net reduction in estimated 2019 cash flow of $10 million.
CEO and president Jeff Ventura said in a statement that the company has made steady progress this year on its strategic objective of pairing Range’s world-class asset base with a strong balance sheet.
The executive added that the sale and debt reduction – coupled with Range’s operational execution and beneficial exposure to improved liquids pricing – brings the company’s projected year-end leverage below 3 times debt to Ebitdax without additional sales.
“Range will continue to pursue asset sales to bring forward inventory value, high-grade the portfolio and strengthen our financial position, with the focus of maximizing long-term shareholder returns,” he said.
The overriding royalty applies to existing and future Marcellus, Utica and Upper Devonian development on the leases while excluding shallower and deeper formations.
After the close, Range will have a net revenue interest of 82 percent on the acreage. Cash flow associated with the 1 percent overriding royalty is expected to be $25 million next year.
Baker Botts aids Liberty Latam on $180.5M Puerto Rico purchase
Baker Botts said Oct. 18 it advised Liberty Latin America on the acquisition of the 40 percent it didn’t own of Liberty Cablevision Puerto Rico from Searchlight Capital Partners funds for stock recently valued at $180.5 million.
Liberty Latin America is a leading telecommunications company with operations in Chile, Puerto Rico, the Caribbean and other parts of Latin America.
Bracewell aids Evercore on Green Plains’ $120.9M asset sale
Bracewell said Oct. 16 it counseled Evercore, financial advisor to the conflicts committee of the board of Green Plains Partners’ general partner, on the sale of assets to Green Plains Inc. for $120.9 million in units.
The transaction includes storage and transportation assets and transfer railcar leases associated with ethanol facilities in Michigan.
Green Plains Partners will receive 8.9 million units owned by Green Plains Inc. It’s also entered into an amendment with Green Plains Trade Group to extend the ethanol storage and throughput agreement for three years.
Latham advises BlackRock on stock purchase from NextDecade
Latham & Watkins said it advised BlackRock on a preferred stock purchase from NextDecade for undisclosed terms.
The transaction, which recently closed, was led by partner Thomas Brandt with associates Lauren Anderson, A.J. Million and Om Pandya. Partner Tim Fenn with associate Jared Grimley helped on tax matters.
NextDecade announced the sale on Aug. 24. The company said it would strengthen its capital position as it continues development of its Rio Grande liquefied natural gas terminal facility and associated pipelines in South Texas.
NextDecade is a liquefied natural gas development company focused on LNG export projects and associated pipelines in Texas, including the Rio Grande LNG export facility in Brownsville. It’s led by CEO and president Matt Schatzman.
Pat Eilers, a managing director with BlackRock’s infrastructure team, said the project is positioned to capitalize on competitive advantages related to its proximity to abundant natural gas reserves in the Permian Basin and Eagle Ford Shale.
Dykema counsels Rose Dental on MBF investment
Dykema associate Dean Gould represented Austin-based Rose Dental Group on an undisclosed investment from MBF Healthcare along with a partner in the firm’s Detroit office.
McDermott Will & Emery counseled MBF with attorneys outside of Texas.
As part of the deal, the two formed dental service organization Strive Dental Management. MBF operating executive Mike Vaughan will be transitional CEO of Strive.
Rose Dental was founded in 1995 by Dr. Rollin Sarradet and Dr. Sergio Escobar. It has 40 dentists and hygienists that provide general, specialty and cosmetic dentistry services.
MBF is a middle market healthcare private equity firm based in Coral Gables, Fla. Managing director Preston Brice led the investment.
V&E advises Talos on offshore Mexico interest swap with Hokchi
Vinson & Elkins said Oct. 19 it advised Talos Energy Inc. on a property interest swap with Pan American Energy unit Hokchi Energy in the Sureste Basin off the coast of Mexico.
Houston-based Talos will assign a 25 percent participating interest, or PI, in Block 2 to Hokchi in exchange for a 25 percent PI in Block 31, which is immediately to the south.
Once the transaction is completed, Hokchi will be the operator of both blocks and Talos will own a 25 percent PI on Block 2 and a 25 percent PI on Block 31.
The transaction has to clear the Mexican oil and gas regulator, the National Commission of Hydrocarbons.
Talos was awarded the production sharing contract, or PSC, for Block 2 in September of 2015 as part of the competitive bidding process in Mexico’s Round 1.1 auction and Hokchi was awarded the PSC for Block 31 as part of Round 3.1 in June. Both blocks had multiple bids.
Talos CEO and president Timothy Duncan said in a statement that the companies are taking action to facilitate quicker, more robust investment and shorter cycle time to production and potentially a more material level of production.
“This trade also allows us to aggregate our neighboring opportunities,” Duncan said.
CAPITAL MARKETS ACTIVITY
Bracewell represents Wells Fargo on $950M facility for Diamond
Bracewell said Oct. 16 it represented Wells Fargo on a new $950 million credit facility and an amended existing credit facility for publicly traded Diamond Offshore Drilling.
David Roland has been general counsel of Diamond since 2014. The St. Mary’s-trained lawyer previously was general counsel of Ion Geophysicial and assistant general counsel at Enron before it collapsed. His early career was spent as an attorney at Caltex Corp. and Gardere Wynne Sewell.
Diamond’s existing credit facility has been amended to provide for availability of $325 million with step-downs to occur over the next two years. Its maturity is unchanged at October 2020 while the new credit facility will mature in October 2023.
The new facility provides liquidity to Diamond and its foreign borrowing unit, is supported by guarantees from certain Diamond entities and a pledge of 65 percent of the foreign borrower’s stock and includes certain additional restrictions on Diamond and its units.
Diamond provides offshore contract drilling services to the energy industry around the globe with 17 offshore drilling rigs, including of 13 semisubmersibles and four dynamically positioned drillships.
Kirkland counsels Värde on exchange of $68M in Lilis debt
Kirkland & Ellis counseled Värde Partners on the exchange of $68 million in second lien term loan debt of Lilis Energy held by Värde for a new series of preferred equity and common equity.
The Kirkland team was led by debt finance partners Lucas Spivey and Ryan Copeland and associate Scott Reid; corporate partner Jhett Nelson and associates Will Mabry and Randy Santa Ana; capital markets partner Julian Seiguer and associate Bryce Gray; and tax partners Mark Dundon and Lane Morgan.
In connection with the exchange, Värde and Lilis entered into a $25 million tack-on to an existing series of preferred equity in Lilis.
Lilis also announced that it entered into a five-year, $500 million credit agreement that provides for a senior secured reserve-based revolving credit facility with an initial borrowing base of $95 million.
Lilis is an exploration and development company operating in the Permian Basin of west Texas and southeastern New Mexico.
Austin cooler purveyor Yeti Holdings Inc., which is owned by the Cortec Group, set its initial public offering terms for 20 million shares at $19 to $21 per share.
At the midpoint, it would have a market capitalization of $1.67 billion.
The Lawbook reported earlier this month that Yeti had refiled for a $100 million initial public offering with the Securities and Exchange Commission after pulling the filing back in March citing market conditions. The Cortec Group-owned company originally filed to go public in 2016.
The company plans to trade on the New York Stock Exchange under the symbol “YETI.” It plans to use the proceeds to repay its revolver and for general corporate purposes.
Jones Day attorneys in Cleveland are counseling Yeti while Latham & Watkins attorneys in New York are representing the underwriters, who are led by BofA Merrill Lynch. Yeti’s general counsel is Bryan Barksdale, who has been in the position since 2015 after serving as general counsel of iFLY Holdings and chief legal officer and general counsel of Bazaarvoice Inc.
Riley Exploration Permian wasn’t so lucky.
The Oklahoma City oil and gas explorer and producer, which is focused on the San Andres formation, postponed its IPO citing “unfavorable equity market conditions.”
It had hoped to offer 6.7 million shares at $14 to $16 per share.
As The Lawbook previously reported, Di Santo Law was counseling the company and Goodwin Procter was representing the underwriters, which include SunTrust Robinson Humphrey and the Seaport Global Securities.
Bluescape, an investment group headed by former TXU CEO John Wilder, is another large Riley stockholder.
The company generated a $12.2 million loss on sales of $21.8 million for the 12 months ending Sept. 30. It planned to list on the New York Stock Exchange under the symbol “REPX.”
SolarWinds, meanwhile, scaled back the size of its proposed IPO.
The Austin, Texas-based IT infrastructure management software maker announced plans to raise $387.5 million in an offering of 25 million shares priced between $15 and $16, down from $756 million with 42 million shares priced between $17 and $19. It ended up pricing the offer at $15, raising $375 million.
As The Lawbook previously reported, DLA Piper partner John J. Gilluly in Austin advised SolarWinds. SolarWinds’ general counsel is Jason Bliss, who was an associate at DLA before joining SolarWinds as assistant general counsel in 2008.
Davis Polk & Wardwell in Meno Park, Calif., counseled the underwriters, who were led by Goldman Sachs.
The company was taken private three years ago by Thoma Bravo Funds and Silver Lake in a $4.5 billion deal.
SolarWinds lost $83.9 million on sales of $728 million last year and another $86.9 million on sales of $398.6 million in the first half of this year.