- Drilling Tools International Holdings, Inc. ("DTI" or the
"Company") has entered into a definitive business combination
agreement with ROC Energy Acquisition Corp. ("ROC") (Nasdaq: ROC).
Upon closing, the combined company (the "Combined Company") will be
listed on the Nasdaq under the new ticker "DTI".
- Headquartered in Houston,
Texas, with roots dating back to 1984, DTI manufactures and
provides a differentiated, rental-focused offering of tools used
for horizontal and directional drilling. DTI has been majority
owned by an affiliate of Hicks Equity Partners LLC and led for
almost 10 years by CEO Wayne Prejean
and an experienced management team.
- DTI expects to achieve strong EBITDA margins of over 30% in
2022 and 2023 with consistent free cash flow generation, supported
by its leading scale, market position and blue-chip customer
base.
- The transaction implies an enterprise value of approximately
$319 million, which equates to 5.5x
projected 2023 adjusted EBITDA of $58
million and 7.8x estimated 2022 adjusted EBITDA of
$41 million; an attractive entry
valuation multiple for investors.
- The transaction is expected to provide net cash proceeds of up
to approximately $217 million,
including approximately $209 million
of cash from ROC's trust account, before the impact of potential
redemptions therefrom, and $45
million of cash from a common stock PIPE, which is expected
to include meaningful participation by Fifth Partners, an affiliate
of ROC's sponsor.
- Hicks Equity Partners and other existing DTI shareholders will
reinvest over 95% of their equity holdings into the Combined
Company to maximize cash on balance sheet.
- DTI's streamlined capital structure positions it to lead
consolidation of the small-cap oilfield services market. DTI
expects to benefit from a zero-debt balance sheet and a robust cash
position, with common equity only and no warrants. The transaction
is expected to close in the second quarter of 2023.
- DTI has a proven acquisition history and a strong pipeline of
acquisition targets, which it expects to further pursue with the
proceeds raised from this transaction.
HOUSTON and DALLAS , Feb. 14,
2023 /PRNewswire/ -- Drilling Tools
International Holdings, Inc. ("DTI" or the "Company"), a leading
oilfield services company that rents downhole drilling tools used
in horizontal and directional drilling, and ROC Energy Acquisition
Corp. ("ROC") (Nasdaq: ROC), a publicly traded special purpose
acquisition company, today announced a definitive agreement for a
business combination that will result in DTI becoming a U.S.
publicly listed company. Upon closing of the transaction, the
combined company (the "Combined Company") is expected to be listed
under the new ticker symbol "DTI."
Leading Provider of Downhole Rental Tools to the Land and
Offshore Drilling Markets
DTI is a leading oilfield services company that manufactures and
rents downhole drilling tools used in horizontal and directional
drilling of oil and natural gas wells. DTI's success is supported
by its ability to meet its customer demand with operations from 22
locations in North America,
Europe and the Middle East; with over 65,000 tools in its
fleet including drill collars, stabilizers, crossover subs,
wellbore conditioning tools, drill pipe, and tubing. DTI also rents
surface control equipment such as blowout preventers and handling
tools, and provides downhole products for producing wells.
There are a limited number of competitors in the oil and gas
drilling rental tools industry, with most described as local and
regional players. Most E&P and oilfield service companies rent
tools, as opposed to owning them, because of the many factors that
affect which tools are needed for a specific task, such as
different formations, drilling methodologies, drilling engineer
preferences, drilling depth and hole size. As a result, DTI
possesses an advantage over competitors due to its significant
scale, geographic reach, large tool inventory, and strong
management team, enabling it to serve a blue-chip customer base
including: SLB, Baker Hughes, Halliburton, OXY, EOG Resources,
ExxonMobil, Chevron, ConocoPhillips, and Phoenix Technologies.
In addition, DTI is able to leverage several differentiating
strengths which include:
- Large Fleet of Rental Tools to Address Customer
Needs: DTI maintains a large fleet that is dispersed across all
major oil and gas producing regions of North America, Europe and the Middle East. Large, high-quality customers
expect rental tool companies to meet all their tool needs, which
without a sizeable rental tool fleet and competitive geographic
reach, smaller providers cannot secure those large contracts. The
sheer number of tool variations and the substantial cost to
replicate a rental tool fleet serve as a barrier to entry for new
competitors in the downhole rental tool industry.
- Master Service Agreements with Leading Blue-Chip
Customers: Master Service Agreements ("MSAs") are required by
many of DTI's leading E&P and oilfield service company
customers. MSAs are only obtained by demonstrating a record of
safety, repeatable processes and procedures and, in some cases,
industry certifications. DTI has over 300 MSAs with leading E&P
operators and oilfield service companies, possessing all the
certifications required by its customers, as well as offering a
robust quality assurance department and the ability to regularly
satisfy customer audits.
- Wide and Diverse Distribution Network: DTI's scale
provides an advantage as it is able to service customers across a
global footprint, with a strategic operational footprint capable of
servicing all major North American oil and gas basins. Most of
DTI's facilities operate 24 hours per day, 365 days per year, and
many are equipped with computerized machining and robotic welding
capabilities to facilitate in-house tool repair, which maximizes
turnaround time and minimizes downtime.
- COMPASS Inventory Management System: COMPASS (Customer
Order Management Portal and Support System) is a proprietary
inventory and order management system, enabling customers to place
orders online, efficiently place repeat orders, obtain updates on
tool orders and account status, and access customized automated
scheduling reports. COMPASS helps maximize fleet utilization,
enabling managers to identify underutilized tools or "right size"
the rental tool fleet, ultimately increasing rental tool use and
maximizing return on capital. This approach has contributed to the
Company's track-record of performance, including positive and
growing profitability.
- Experienced Management Team: DTI is led by oil and gas
industry veterans with experience spanning many decades, industry
cycles and segments of the oil and gas industry. The Company's
senior leadership team has a combined tenure of over 100 years of
oilfield service industry experience, led by Wayne Prejean with more than 40 years.
In addition, DTI has a well-established M&A track record,
and has identified a full pipeline of acquisition targets, which
the Company expects to further pursue with the proceeds raised from
this transaction. Many of DTI's targets address near-term strategic
priorities for the Company, and management believes it is well
positioned to attain purchase prices that present accretive
valuation metrics, leveraging its unique market position,
management experience and established relations. Since 2012, DTI
has executed and successfully integrated corporate and asset
acquisitions, including a large asset purchase from SLB and
acquisitions of Reamco Inc. and Premium Tool Rentals, among
others.
DTI anticipates it will be able to leverage its strengths to
achieve a revenue CAGR of 34% from 2020 through 2023. This future
growth is expected to be supported by DTI's efforts to maximize
profitability of its core rental tool business, commercialize new
high-value rental tools that make the drilling process more
efficient, extend the Company's reach into other segments of a
well's lifecycle such as completion and production, and expand
geographically.
The Company anticipates continued growth, with 2022 and 2023
revenue forecast to be approximately $130
million and $164 million
respectively; and 2022 and 2023 adjusted EBITDA forecasts of
approximately $41 million and
$58 million, respectively. ROC
believes that an investment in DTI presents a compelling
opportunity at an approximate 33% discount to its peers' 2023
adjusted EBITDA multiples.
Wayne Prejean, President and
Chief Executive Officer of DTI, said, "Drilling Tools' merger with
ROC represents a transformative opportunity for the Company and
will enable us to be more responsive to the needs of our customers.
This transaction will help us grow our core business and facilitate
our plan to expand via acquisitions into new markets and emerging
technologies. In addition, this transaction will enable DTI to
implement long term plans to align with its long-term customers'
needs for additional tools and services. We are also pleased this
will provide our employees new opportunities for career development
as we grow and require more resources to manage the business."
Daniel Kimes, Chief Executive
Officer of ROC, added, "DTI is a market leader in its segment and
has a platform poised for multiple avenues of growth. The Company
has a phenomenal management team that has built a highly profitable
and durable business. We believe macro trends favor significant
increases in oil and gas activity levels, and DTI stands to benefit
as a result. We are excited to partner with the team as they become
a public company."
Transaction Overview
The business combination implies a combined pro forma enterprise
value of approximately $319 million,
which equates to 5.5x projected 2023 adjusted EBITDA of
$58 million and 7.8x estimated 2022
adjusted EBITDA of $41 million, an
attractive entry valuation multiple for investors.
The transaction is expected to provide net cash proceeds of up
to approximately $217 million,
including approximately $209 million
of cash from ROC's trust account, before the impact of potential
redemptions therefrom, and $45
million of cash from a common stock PIPE, which is expected
to include meaningful participation by Fifth Partners, an affiliate
of ROC's sponsor. Hicks Equity Partners and other existing DTI
shareholders will reinvest over 95% of their equity holdings into
the Combined Company for maximum cash on balance sheet.
DTI's streamlined capital structure positions the Company to
lead the consolidation of the small-cap oilfield services market.
DTI expects to benefit from a zero-debt balance sheet, a robust
cash position, with common equity only and no warrants.
The Boards of Directors of each of DTI and ROC have unanimously
approved the transaction. The transaction will require the approval
of the stockholders of ROC and is subject to satisfaction or waiver
of the conditions stated in the merger agreement and other
customary closing conditions, including the receipt of certain
regulatory approvals. The transaction is expected to close in the
second quarter of 2023.
Additional information about the proposed transaction, including
a copy of the merger agreement and investor presentation, will be
provided in a Current Report on Form 8-K to be filed by ROC with
the Securities and Exchange Commission ("SEC") and will be
available on the Drilling Tools investor relations page at
http://www.drillingtools.com/investors and at www.sec.gov. More
information about the proposed transaction will also be described
in ROC's proxy statement/prospectus relating to the business
combination, which it will file with the SEC.
Advisors
Jefferies LLC is serving as capital markets advisor and private
placement agent to ROC Energy Acquisition Corp. Kirkland &
Ellis LLP is serving as legal counsel for Jefferies LLC.
EarlyBirdCapital, Inc. is serving as financial advisor to ROC
Energy Acquisition Corp.
Bracewell LLP is serving as legal advisor to Drilling Tools
International. Winston & Strawn LLP is serving as legal advisor
to ROC.
About Drilling Tools International
Drilling Tools International is a Houston, Texas based leading oilfield services
company that rents downhole drilling tools used in horizontal and
directional drilling of oil and natural gas wells. Drilling Tools
operates from 22 locations across North
America, Europe and the
Middle East. To learn more about
Drilling Tools visit: www.drillingtools.com.
About ROC Energy Acquisition Corp.
ROC is a blank check company formed for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one
or more businesses. While ROC may pursue an acquisition in any
business industry or sector, it has concentrated its efforts on the
traditional energy sector in the U.S. ROC is led by Chief Executive
Officer Daniel Jeffrey Kimes and
Chief Financial Officer Rosemarie
Cicalese. To learn more, visit: https://rocspac.com.
About Hicks Equity Partners
Hicks Equity Partners ("HEP") is the private equity arm of Hicks
Holdings LLC, a holding company for the Thomas O. Hicks family assets. With 40 years of
private equity experience, Mr. Hicks pioneered the "buy and build"
strategy of investing and founded Hicks Muse Tate & Furst,
which raised more than $12 billion of
private equity across six funds and completed over $50 billion of leveraged acquisitions. HEP looks
for established companies with proven track records, strong free
cash flow characteristics, a strong competitive industry position
and an experienced management team looking to partner with
long-term capital.
Forward-Looking Statements
This press release may include, and oral statements made from
time to time by representatives of DTI, ROC, and the Combined
Company may include, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Statements regarding the proposed business combination and the
financing thereof, and related matters, as well as all other
statements other than statements of historical fact included in
this press release are forward-looking statements. When used in
this press release, words such as "anticipate," "believe,"
"continue," "could," "estimate," "expect," "intend," "may,"
"might," "plan," "possible," "potential," "predict,"
"project," "should," "would" and similar expressions, as they
relate to DTI, ROC, or the Combined Company, or their respective
management teams, identify forward-looking statements. These
forward-looking statements also involve significant risks and
uncertainties, some of which are difficult to predict and may be
beyond the control of DTI, ROC, and the Combined Company, that
could cause the actual results to differ materially from the
expected results. Factors that may cause such differences include,
but are not limited to: (1) the outcome of any legal proceedings
that may be instituted in connection with any proposed business
combination, (2) the inability to complete any proposed business
combination, (3) delays in obtaining, adverse conditions contained
in, or the inability to obtain necessary regulatory approvals or
complete regulatory reviews required to complete any business
combination, (4) the risk that any proposed business combination
disrupts current plans and operations, (5) the inability to
recognize the anticipated benefits of any proposed business
combination, which may be affected by, among other things,
competition, the ability of the Combined Company to grow and manage
growth profitably, maintain relationships with customers and
suppliers and retain key employees, (6) costs related to any
proposed business combination, (7) the ability to meet stock
exchange listing standards at or following consummation of the
business combination, (8) changes in applicable laws or
regulations, (9) the possibility that DTI or the Combined Company
may be adversely affected by other economic, business, and/or
competitive factors, (10) the impact of the global COVID-19
pandemic, and (11) other risks and uncertainties separately
provided to you and indicated from time to time described in
filings and potential filings by DTI, ROC, or the Combination
Company with the SEC. In addition, there will be risks and
uncertainties described in the registration statement on Form S-4
related to the proposed business combination, which is expected to
be filed with the Securities and Exchange Commission ("SEC"). Such
forward-looking statements are based on the beliefs of management,
as well as assumptions made by, and information currently available
to, the DTI's, ROC's, and the Combined Company's management. Actual
results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors detailed
in ROC's filings with the SEC. All subsequent written or oral
forward-looking statements attributable to DTI, ROC, or the
Combined Company or persons acting on each of their respective
behalves are qualified in their entirety by this paragraph.
Forward-looking statements are subject to numerous conditions, many
of which are beyond the control of each of DTI, ROC, and the
Combined Company, including those set forth in the Risk Factors
section of ROC's registration statement and prospectus for the
Company's initial public offering filed with the SEC, ROC's Annual
Report on Form 10-K for the year ended December 31, 2021 and in subsequent Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2022, June 30,
2022, and September 30, 2022,
in each case as filed with the SEC. DTI, ROC, and the Combined
Company each undertake no obligation to update these statements for
revisions or changes after the date of this release, except as
required by law.
Financial Information; Non-GAAP Measures
This press release includes certain financial measures not
presented in accordance with generally accepted accounting
principles ("GAAP"), including, but not limited to, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), earnings
adjusted for interest expense, net; income tax expense/(benefit),
net; depreciation and amortization; intangible impairment; stock
option expense; monitoring fee; reclassification from operating to
other expense; other expense/(income); unrealized loss – trade
securities; loss/(gain) on non-op assets; PPP loan forgiveness; and
real estate sales proceeds ("Adjusted EBITDA"); EBITDA before
capital expenditure ("Free Cash Flow"), and certain ratios and
other metrics derived therefrom. Note that other companies may
calculate these non-GAAP financial measures differently, and,
therefore, such financial measures may not be directly comparable
to similarly titled measures of other companies. Further, these
non-GAAP financial measures are not measures of financial
performance in accordance with GAAP and may exclude items that are
significant in understanding and assessing DTI's financial results.
Therefore, these measures should not be considered in isolation or
as an alternative to net income, cash flows from operations or
other measures of profitability, liquidity or performance under
GAAP. You should be aware that ROC's, the Combined Company's and
DTI's presentation of these measures may not be comparable to
similarly titled measures used by other companies. ROC, the
Combined Company, and DTI believe these non-GAAP measures of
financial results provide useful information to management and
investors regarding certain financial and business trends relating
to DTI's financial condition and results of operations. ROC, the
Combined Company and DTI believe that the use of these non-GAAP
financial measures provides an additional tool for investors to use
in evaluating ongoing operating results and trends in DTI, and in
comparing DTI's financial measures with those of other similar
companies, many of which present similar non-GAAP financial
measures to investors. These non-GAAP financial measures are
subject to inherent limitations as they reflect the exercise of
judgments by management about which items of expense and income are
excluded or included in determining these non-GAAP financial
measures. Please refer to the reconciliations included in this
press release of these non-GAAP financial measures to what DTI
believes are the most directly comparable measure evaluated in
accordance with GAAP. This press release also includes certain
projections of non-GAAP financial measures. DTI does not provide
reconciliations of EBITDA, Free Cash Flow, Adjusted EBITDA or
EBITDA margin (the result obtained from dividing EBITDA by revenue)
to net income on a forward-looking basis because DTI is unable to
forecast the amount or significance of certain items required to
develop meaningful comparable GAAP financial measures without
unreasonable efforts. These items include gains or losses on sale
or consolidation transactions, accelerated depreciation, impairment
charges, gains or losses on retirement of debt, variations in
effective tax rate and fluctuations in net working capital, which
are difficult to predict and estimate and are primarily dependent
on future events, but which are excluded from DTI's calculations of
EBITDA, Free Cash Flow, Adjusted EBITDA and EBITDA margin. Certain
monetary amounts, percentages and other figures included in this
press release have been subject to rounding adjustments. We expect
the variability of these items could have a significant impact on
our reported GAAP financial results.
Certain other amounts that appear in this press release may not
sum due to rounding. In connection with the contemplated filing by
ROC of a proxy statement / prospectus on Form S-4 with respect to
the proposed business combination, and in the course of the review
by the SEC of such proxy statement / prospectus, ROC may make
changes to the information presented in this press release,
including, without limitation, the description of DTI's business
and the financial information and other data (including the
prospective financial information and other data) included in this
press release. Comments by the SEC on information in the proxy
statement / prospectus may require modification or reformulation of
the information we present in this press release, and any such
modification or reformulation could be significant. In particular,
we note that the SEC has adopted certain rules regarding the use of
EBITDA and other financial measures that do not comply with GAAP in
the United States, which rules
will be applicable to the proxy statement / prospectus expected to
be filed with respect to the proposed business combination.
The following table presents a reconciliation of forecasted
Adjusted EBITDA to forecasted net income for the years ended
December 31, 2022 and December 31, 2023:
Use of Projections
This press release contains projected financial information with
respect to DTI. Such projected financial information constitutes
forward-looking information, is for illustrative purposes only and
should not be relied upon as necessarily being indicative of future
results. Further, illustrative presentations are not necessarily
based on management's projections, estimates, expectations or
targets but are presented for illustrative purposes only. DTI's
independent auditors have not audited, reviewed, compiled or
performed any procedures with respect to the projections for the
purpose of their inclusion in this press release, and, accordingly,
they did not express an opinion or provide any other form of
assurance with respect thereto for the purpose of this press
release. The assumptions and estimates underlying such financial
forecast information are inherently uncertain and are subject to a
wide variety of significant business, economic, competitive and
other risks and uncertainties. See "Forward-Looking Statements"
above. Actual results may differ materially from the results
contemplated by the financial forecast information contained in
this press release, and the inclusion of such information in this
press release is not intended, and should not be regarded, as a
representation by any person that the results reflected in such
forecasts will be achieved. Further, the metrics referenced in this
press release regarding select aspects of DTI's operations were
selected by ROC and DTI on a subjective basis. Such metrics are
provided solely for illustrative purposes to demonstrate elements
of DTI's business, are incomplete and are not necessarily
indicative of DTI's performance or future performance or overall
operations. There can be no assurance that historical trends will
continue. Any investment in the business combination entails a high
degree of risk. No assurance can be given that investors will
receive a return on their capital, and investors could lose part or
all of their investment.
Important Information About the Business Combination and
Where to Find It
ROC intends to file a registration statement on
Form S-4 with the SEC, which will include a proxy
statement/prospectus, that will be both the proxy statement to be
distributed to ROC's stockholders in connection with its
solicitation of proxies for the vote by ROC's stockholders with
respect to the business combination and other matters as may be
described in the registration statement, as well as the prospectus,
and relating to the offer and sale of the securities to be issued
in the business combination. After the registration statement is
declared effective, ROC will mail a definitive proxy
statement/prospectus and other relevant documents to its
stockholders. This press release does not contain all the
information that should be considered concerning the proposed
business combination and is not intended to form the basis of any
investment decision or any other decision in respect of the
business combination. ROC's stockholders and other interested
persons are advised to read, when available, the preliminary proxy
statement/prospectus included in the registration statement and the
amendments thereto and the definitive proxy statement/prospectus
and other documents filed in connection with the proposed business
combination, as these materials will contain important information
about DTI, ROC and the business combination.
When available, the definitive proxy statement/prospectus and
other relevant materials for the proposed business combination will
be mailed to stockholders of ROC as of a record date to be
established for voting on the proposed business combination.
Stockholders will also be able to obtain copies of the preliminary
proxy statement, the definitive proxy statement and other documents
filed with the SEC, without charge, once available, at the SEC's
website at www.sec.gov, or by directing a request to ROC's
secretary at 16400 Dallas Parkway, Dallas, TX 75248, (972) 392-6180.
Participants in the Solicitation
ROC and its directors, executive officers, other members of
management and employees, under SEC rules, may be deemed to be
participants in the solicitation of proxies of ROC's stockholders
in connection with the business combination. Investors and security
holders may obtain more detailed information regarding the names
and interests in the business combination of ROC's directors and
officers in ROC's filings with the SEC, including ROC's Annual
Report on Form 10-K for the fiscal year ended
December 31, 2021, which was filed with the SEC on
March 24, 2022, and such information
and names of DTI's directors and executive officers will also be in
the Registration Statement on Form S-4 to be filed with
the SEC by ROC, which will include the proxy statement/prospectus
of ROC for the business combination. Stockholders can obtain copies
of ROC's filings with the SEC, without charge, at the SEC's website
at www.sec.gov. DTI and its directors and executive officers
may also be deemed to be participants in the solicitation of
proxies from the stockholders of ROC in connection with the
proposed business combination. A list of the names of such
directors and executive officers and information regarding their
interests in the proposed business combination will be included in
the proxy statement/prospectus for the business combination when
available.
No Offer or Solicitation
This press release shall not constitute a solicitation of a
proxy, consent, or authorization with respect to any securities or
in respect of the proposed business combination. This press release
also shall not constitute an offer to sell or the solicitation of
an offer to buy any securities, nor shall there be any sale of
securities in any states or jurisdictions in which such offer,
solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended, or an exemption therefrom.
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SOURCE ROC Energy Acquisition Corp.