Service companies Frank’s International NV (NYSE: FI) and Blackhawk Specialty Tools LLC plan to merge in a deal that gives Frank’s access to specialty cementing tools and well intervention products.

The deal follows a crawling consolidation of the service and supply sector, where oil and gas companies have been among the hardest hit during the downturn. Frank’s merger is the largest deal in the sector since France’s Technip and FMC Technologies Inc. (NYSE: FTI) agreed to a $13 billion joint venture in May.

Frank’s will pay about $321 million for Blackhawk parent Blackhawk Group Holdings Inc. consisting of:

  • $150 million cash;
  • 12.8 million shares of common stock; and
  • $80 million repayment of Blackhawk debt.

Blackhawk is 70% owned by Bain Capital Private Equity. The company designs, manufactures, rents and sells advanced offshore and onshore cementing equipment and products. The company has a “blue chip” customer base in the Gulf of Mexico (GoM).

Mark Brown, an analyst with Seaport Global Securities LLC, said after speaking with Frank’s, the company appears to have made a “winning move” in buying Blackhawk.

“The specialty cementing tools and well intervention products offered by Blackhawk will augment FI’s core tubular running services business,” Brown said. “The combination will give the GoM-focused Blackhawk a more global offshore footprint and allow FI to secure a larger share of wallet from customers.”

Brown was also pleased by the timing of the purchase, which is made against a backdrop of negative sentiment toward anything offshore.

“We expect that the deal metrics will look highly attractive if we see even a modest degree of offshore market recovery over the next few years,” he said.

Other analysts were less enthusiastic about the Frank’s willingness to spend so much. The company had clearly been interested in adding technology or equipment under its banner but Brad Handler, equity analyst at Jefferies LLC, questioned the time frame for the deal to work to its advantage.

“FI is executing on its telegraphed product extension strategy with the acquisition of Blackhawk Specialty Tools. The strategic extension makes sense to us, although the deepwater exposure implies a long road to realizing the benefits,” he said in an Oct. 7 report.

Handler noted that Blackhawk revenue was cited as being 10% to 15% of recent Frank’s annual revenue.

“The current weak environment suggests valuation is rich unless looking out to closer to 2020,” he said.

Blackhawk looks to contribute about $65 million to Frank’s U.S. revenue beginning in 2017 before it grows to $190 million in 2020.

Gary Luquette, Frank’s president and CEO, said that Blackhawk was similar to Frank’s in its reputation for combining exceptional service with technological innovation.

“Together we will continue to offer the same reliable service customers expect, while furthering customer relationships with new products and services across the Frank’s global footprint,” Luquette said. “Joining Blackhawk’s cementing tool expertise with Frank’s global tubular running services franchise will allow us to offer customers worldwide a more integrated suite of best-in-class products and services to address their well construction needs across all environments from land to shelf to deep water.”

Morgan Stanley & Co. LLC was Frank’s exclusive financial adviser on the transaction, and legal advice was provided by Baker & McKenzie LLP. Blackhawk was advised by Simmons & Co. International, the energy specialist unit of Piper Jaffray, and legal advice was provided by Ropes & Gray LLP.

Infrared-Light District

Since 2015, deals have stuttered badly for service and supply companies. In 2015, deal activity was about $584 million. So far in 2016, excluding the FMC deal, about $1.4 billion in transactions have been announced.

Despite the uneven pace of acquisitions, some companies have shown initiative.

U.S. Silica Holdings Inc. (NYSE: SLCA) has been among the most active players in the A&D and M&A markets as it looks to meet the increased demand for proppant as oil prices continue to recover. In the past few years, proppant per well has increased more than 70%.

From July to August, the company announced two deals worth about $428.3 million related to sand or sand infrastructure. In May, the company purchased land adjacent to its silica sand mine and plant in Ottawa, Ill.

“We see a battle brewing in the sandbox as completion intensity trends point to industry proppant demand matching or eclipsing 2014 peak levels by 2018,” Tudor, Pickering, Holt and Co. said on Sept. 30. “As is always ultimately the case with competition in any commoditized business … winners will have to exhibit a sprinter’s speed and a marathoner’s endurance.”

Darren Barbee can be reached at dbarbee@hartenergy.com.