Natural Gas Services Group expands credit line to $500M to fund Flatrock acquisition. The 6.2x multiple is below recent service-sector deals, integration risk and higher leverage will test NGS's execution.
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Natural Gas Services Group is buying Flatrock Compression for a price that values the rental compression provider at 6.2 times its annualized adjusted EBITDA. NGS will finance the deal by expanding its credit facility from $400 million to $500 million. The company also kept a $100 million accordion that could push total capacity to $600 million.
Flatrock runs a fleet of roughly 86,000 horsepower. The fleet is 95% utilized. It leans toward large horsepower units and electric motor driven compressors. Those are the same segments NGS has been targeting. Flatrock's operations sit in the Permian Basin and Eagle Ford, two regions where NGS already has a presence.
"This acquisition increases our operational density in both the Permian Basin and Eagle Ford," said Justin Jacobs, NGS chief executive officer. He said the deal adds customer diversification and growth opportunities with several new large customers. The purchase price is immediately accretive to key financial metrics, Jacobs added.
The 6.2x multiple sits below the 7x to 8x range common in recent service company acquisitions, according to data compiled by Intrepid Partners, NGS's financial advisor. NGS management described the multiple as attractive. The company funded the purchase entirely through debt, so existing equity holders benefit from the accretion without dilution.
The expanded credit line pushes NGS's leverage higher. The company said it retains meaningful liquidity after the transaction. The $500 million facility, up from $400 million, includes a $100 million accordion that could bring total capacity to $600 million if lenders approve.
Merging two rental fleets carries execution risk. Flatrock's 86,000 HP will combine with NGS's existing fleet, creating a combined entity with more than 200,000 HP in rental equipment. The companies operate similar equipment. They have different customer rosters. The first two quarters after close will test how well the combined company handles billing and maintenance integration. Maintaining Flatrock's 95% utilization rate will be the first benchmark.
Flatrock also delivers patented gas lift facility solutions designed to minimize downtime and reduce methane emissions. The gas lift technology gives NGS a way to serve customers under tighter environmental rules.
NGS will host a conference call on June 15 at 10 a.m. Eastern to discuss the deal and provide integration plans. The company previously set a May 12 date for its first-quarter results. Natural Gas Services Group Sets May 12 Date for Q1 Results
The acquisition is expected to close in the coming months. No specific date was given. The company's advisors included Gibson Dunn and Intrepid Partners for NGS, and CBurke Legal, Nelson Mullins, and Greenridge Advisors for Flatrock.
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