Noah Zivitz

Managing Editor, BNN Bloomberg

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Enerflex Ltd. announced on Monday that it’s buying Houston-based Exterran Corp. in a US$735-million cross-border deal that will combine a pair of midstream service providers in the energy industry.

Under the terms of the deal, Calgary-based Enerflex will swap 1.021 of its shares for each common share of Exterran. Including assumed debt, the transaction is worth US$1.5 billion.

Enerflex also announced new financing on Monday, including a US$600-million revolving credit facility as well as a US$925-million bridge loan.

The amount of debt that Enerflex is taking on caught some analysts by surprise.

“The acquisition will significantly increase Enerflex's size, scale, international focus and gross margin from recurring revenue, however it will also notably increase the company's leverage metrics in the near term which is likely to make investors weigh the transaction accordingly,” wrote Stifel Analyst Cole Pereira in a note to clients.

After the deal closes, Exterran shareholders will own 27.5 per cent of Enerflex, which will remain headquartered in Calgary, the companies said. Enerflex said it will maintain its listing on the Toronto Stock Exchange and will also apply for a U.S. listing either on the Nasdaq or New York Stock Exchange.

“The transaction is immediately accretive to shareholders; enhances our presence, offerings, and scale across our regions; and importantly, executes upon our years-long strategic goal of increasing recurring revenues to improve the profitability and resiliency of our platform,” said Enerflex President and Chief Executive Marc Rossiter, who will continue in those roles after the deal closes, in a release.

Enerflex said it’s expecting at least US$40 million in annual cost savings within 12 to 18 months after the deal closes, and added that it expects the deal will allow it to double its adjusted earnings before interest, taxes, depreciation, and amortization.
The companies said they expect the deal will close in the second or third quarter of this year, subject to shareholder and regulatory approvals.