Drilling firms Akita Drilling Ltd. and Xtreme Drilling Corp. agreed to merge in a business combination valued at roughly C$209 million, the Calgary, Alberta-based companies said in a joint press release on June 5.
The combined company will operate under the Akita name and have a fleet of 44 high-spec drilling rigs with operations in several major resource basins in the U.S. and Canada.
Xtreme has a strong operating history and rig technology credentials in the U.S., which Akita said will give it immediate scale in the U.S. market including the Permian Basin, where it recently expanded.
Seaport Global Securities analysts said Akita is going all in on U.S. land with the Xtreme merger, which it said will create a land drilling contractor with a "significant presence" in the U.S. and Canada.
"Although Xtreme was clearly looking to be the acquirer to increase its scale and improve its financial flexibility, its limited prospects on a standalone basis coupled with the purchase price were hard to pass on," Seaport analysts said in a June 6 note.
The firm said the acquisition price, which included the assumption of C$10 million of net debt, implies a 32% premium over the 20-day volume-weighted average price for Xtreme and roughly $15 million per rig.
The companies expect to generate an estimated $8 million in annual recurring synergies and efficiencies and also benefit from greater financial capacity to support potential newbuilds as a result of the combination.
"While the benefits of consolidation for smaller drillers from economies of scale and increased financial flexibility are obvious, we still believe it will be tough for the stars to align on valuation, rig specifications, market overlap, and, most importantly, management’s buy-in to be acquired," Seaport analysts said.
The companies said they expect to complete the transaction in third-quarter 2018.
ATB M&A Advisory Services was exclusive financial adviser, Bennett Jones LLP was legal adviser and Felesky Flynn LLP was tax adviser to Akita. Tudor, Pickering, Holt & Co. was exclusive financial adviser and Stikeman Elliott LLP was legal adviser to Xtreme.