Kodiak Gas Services to acquire CSI Compressco in $854m all-stock deal

Kodiak Gas Services, Inc. (NYSE: KGS) and CSI Compressco LP (NASDAQ: CCLP) have reached a definitive merger agreement, marking a significant consolidation in the natural gas industry. The all-equity transaction, valued at approximately $854 million, includes the assumption of $619 million of net debt, based on Kodiak’s stock closing price on December 18, 2023.

Strategic Rationale Behind the Merger

The merger brings together two industry giants, with Kodiak acquiring CSI Compressco to form the largest contract compression fleet in the industry. The combined entity will boast 4.3 million revenue-generating horsepower, enhancing Kodiak’s service offerings across the natural gas value chain. This includes treating, gas cooling, and aftermarket services, deepening Kodiak’s footprint in critical areas like the Permian Basin and Eagle Ford Shale.

Financial Implications and Shareholder Benefits

The combined company is expected to generate approximately $630 million in 2024 Adjusted EBITDA, factoring in anticipated annual cost synergies of at least $20 million. This acquisition is set to be accretive to Kodiak’s Discretionary Cash Flow and Free Cash Flow per share, while maintaining a neutral leverage effect post-synergies. For CSI Compressco unitholders, the transaction promises an enhanced dividend, improved trading liquidity, and increased research coverage.

Leadership’s Vision for the Future

Kodiak’s CEO, Mickey McKee, expressed enthusiasm about the acquisition’s potential to drive value for shareholders and unitholders. He emphasized the increased scale, improved financial flexibility, and alignment with Kodiak’s capital allocation strategy. John Jackson, CEO of CSI Compressco, highlighted the combined company’s market leadership in compression infrastructure and its diversified customer base.

Details of the Transaction

CSI Compressco unitholders will receive 0.086 shares of Kodiak common stock for each common unit they own. The transaction, approved by both companies’ boards, is supported by key CSI Compressco unitholders, including Spartan Energy Partners LP. Subject to regulatory approvals, the deal is expected to close in the second quarter of 2024.

Shareholder Commentary and Future Outlook

Alex Darden, Partner at EQT Infrastructure and Kodiak board member, lauded the transaction’s unique value creation opportunities. He expressed confidence in Kodiak’s management team to continue delivering high-quality service post-merger.

Conclusion:

The acquisition of CSI Compressco by Kodiak Gas Services represents a transformative moment in the natural gas industry, creating a powerhouse with unparalleled scale and service capabilities. This strategic move is poised to reshape the market dynamics and foster sustainable growth in the energy sector.