Recapitalization of Spartan Energy Case Study
The Principals of Founders Investment Banking, LLC acted as lead financial advisor in a sponsored majority recapitalization of Spartan Energy Services, LLC – which includes subsidiaries Spartan Thru Tubing, LLC and Spartan Flow Control, LLC. The recapitalization was sponsored by Harren Equity Partners who was supported by the debt provider Prospect Capital Partners.
Based in Lafayette, Louisiana, Spartan Energy Services is a rapidly growing multi-basin energy services company that provides downhole thru tubing, fishing, and flow control services throughout the U.S. The operating subsidiaries Spartan Thru Tubing and Spartan Flow Control each share common resources and enjoy considerable employee ownership at the subsidiary level. Assisted by Founders, Spartan was founded in April 2010 by a team of seasoned industry veterans who established a unique culture comprised of military precision and discipline.
Spartan Energy provides specialty oil and gas field services and equipment primarily to independent exploration and production (E&P) companies. Spartan Energy serves the major onshore shale markets including the Eagle Ford, Haynesville, Marcellus, Utica, Bakken and Permian, with growing deployments into the offshore Gulf of Mexico. Spartan’s blue chip customer base is comprised of some of the industry’s leading E&P companies.
The Companies were founded by Delmar Crochet, a 25-year veteran of the oilfield services industry. Delmar and Founders have a long-standing relationship having acquired Tornado Thru Tubing Services in 2000, which Delmar and Scott Kirchoff were able to build and sell through Founders in 2003. Founders provided financial advisory services at the founding stages of Spartan and continued corporate advisory work over the past several years. Delmar assembled a team of the industry’s most respected veterans utilizing a unique employee ownership model.
Spartan was founded during a paradigm shift in the U.S. energy markets to seize this high-growth, dynamic market opportunity. The Companies quickly established themselves across the major onshore shale markets generating nearly $40M in revenue in 2012. During this rapid growth, the Company became increasingly capital constrained in seizing larger opportunities. In addition, Delmar was burdened with administrative activities associated with this growth and was not being used to his highest value as a leader in the field directing business development for larger customers. It was clear the Company needed increased infrastructure to support its continued success.
Spartan desired to pursue a transaction with a financial partner who had experience and a current presence in Oil & Gas who would provide growth capital and a “liquidity boost” of morale to the shareholders. The Company also desired to de-risk and diversify the holdings of Spartan CEO Delmar Crochet – largely removing him from personal guarantees.
The Principals of Founders advised Spartan to seek a majority recapitalization to achieve the immediate goals of the company while still leaving considerable room to capitalize on a subsequent transaction– or “2nd bite of the apple.”Through a thorough assessment of the industry and company, a detailed financial model and a marketing package for the Company were created. The marketing pieces were distributed to a targeted list of financial buyers, which included only those with oil and gas experience. The process resulted in a valuation at the top of the target valuation range and a variety of highly beneficial aspects were provided by the transaction, including:
- Providing significant liquidity at a strong valuation that allowed the owners to diversify their personal wealth
- Selecting a well-regarded partner, Harren Equity Partners, who came highly recommended by recent CEO partners and had very meaningful and specific experience in Spartan’s space
- Existing management and shareholders maintaining a considerable equity position in the recapitalized company that provides them with significant upside through anticipated value appreciation (2nd bite of the apple)
- Completing this very intense process in an accelerated time frame (less than 6 months) to avoid year-end tax changes
- Achieving a prudent capital structure while maximizing value; finding the optimal balance between debt and equity to meet our clients overall objectives
The Principals of Founders, acting in the capacity of registered investment banking agents, successfully represented Spartan Energy Services in this transaction.
Founders Investment Banking (Founders) is a merger, acquisition & strategic advisory firm serving middle-market companies. Founders’ focus is on oil and gas, industrials, software, internet, digital media and healthcare companies located nationwide, as well as companies based in the Southeast across a variety of industries. Founders’ skilled professionals, proven expertise and process-based solutions help companies access growth capital, make acquisitions, and/or prepare for and execute liquidity events to achieve specific financial goals. In order to assist Founders Investment Banking with securities related transactions certain Principals are registered investment banking agents of M&A Securities Group, Inc., member FINRA/SiPC. M&A Securities Group and Founders are not affiliated entities. For more information, visit www.foundersib.com.