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Select Energy (WTTR) to Acquire Rockwater for Over $470M

Field service provider Select Energy Services, Inc. WTTR recently announced that it plans to acquire Houston-based Rockwater Energy Solutions, which is privately owned, in an all-stock deal. Select Energy and Rockwater are two of the biggest water management companies in the drilling and fracking industry. The value of the deal is estimated to be more than $470 million.

About the Deal

The stock-for-stock transaction will require Select Energy to issue 37.95 million shares of common stock against Rockwater's all outstanding shares of common stock. Once the deal materializes, shareholders of Select Energy will possess around 64.4% of the merged company and the present Rockwater shareholders will receive the remaining 35.6%. The deal is expected to be closed in the third quarter, more precisely in Sep 2017.

The combined company will use the name Select Energy for all its water related services, while the Rockwater brand name will continue to exist for its chemicals business unit.

Select Energy went public in Apr 2017. Rockwater shareholders will receive a total of 106.73 million Select Energy common shares. Crestview Partners, SCF Partners, and Mr. John Schmitz will be the largest shareholders of the combined company. The transaction has been approved by the imperative stockholders of both the companies and awaits regulatory approval under the Hart-Scott-Rodino Act.

Deal Synergies

The merged company is expected to generate annual revenues of about $1.2 billion to $1.3 billion, of which 70%, 16% and 14% will be from water solutions, chemical services and other services, respectively. The merged company is expected to have consolidation benefits in the range of $15 - $20 million per annum, which will be realized in 2018.

During the time of signing the merger agreement, Select Energy received a five-year committed financing of $150 million asset-backed revolving loan facility from its present lenders. The amount is expected to double after the completion of the deal.

A decline in drilling contracts has intensified competition in recent times in the oil field service industry. The acquisition will help the merged company to provide substantial benefits to shareholders in the present market situation. With more than 3,200 field personnel and the combined skill set of both the companies, it can focus on its service and capital.

John Schmitz, the present chairman and CEO of Select Energy, will become the full-time executive chairman of the combined company.  Holli Ladhani, the present chairman, president and CEO of Rockwater, will become the president and CEO of the merged company. The board of the merged company will include representatives from both companies.

About Select Energy

Select Energy is a provider of water solutions to the US unconventional oil and gas industry. It offers drilling and completion activities associated with hydraulic fracturing, complementary water-related services, which support oil and gas well completion and production activities including containment, monitoring, treatment, flowback, hauling and disposal. Select Energy is headquartered in Gainesville, TX.

Price Performance

Select Energy stock declined 3.7% in the last three months, outperforming the 11.8% fall of the industry it belongs to.

Zacks Rank and Stocks to Consider

Select Energy presently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector include Par Pacific Holdings, Inc. PARR, Braskem S.A. BAK and Enbridge Energy, L.P. EEP. These companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Par Pacific’s sales for the second quarter of 2017 are expected to increase 45.2% year over year. The partnership delivered an average positive earnings surprise of 171.8% in the last four quarters.

Braskem’s sales for 2017 are expected to increase 11% year over year. The company’s earnings for the second quarter of 2017 are expected to increase 197%.

Enbridge Energy’s sales for the second quarter of 2017 are expected to increase 13.2% year over year. The partnership delivered an average positive earnings surprise of 38.22% in the last four quarters.

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