Upstream businesses to combine in multibillion-dollar deal

The skinny

The Woodlands-based Apergy Corp. (NYSE: APY), which spun off of an Illinois-based company last year, will merge with the upstream energy business of Sugar Land-based Nalco Champion, a division of Minnesota-based Ecolab Inc. (NYSE: ECL) created in 2013.

The details

The deal is expected to be complete by the end of the second quarter of 2020. Apergy will issue 127 million shares to Ecolab shareholders and assume net debt of approximately $492 million. Existing Apergy shareholders will own 38 percent of the combined company, while Ecolab shareholders will own the other 62 percent.

Based on Apergy’s Dec. 18 closing price of $30.67 per share, the deal values the Nalco Champion upstream energy business, now called ChampionX, at $4.4 billion.

The combined company

ChampionX is expected to generate about $2.4 billion in 2019 revenue, and the combined company’s pro forma 2019 sales are expected to be about $3.5 billion. The merger is expected to result in approximately $75 million of annual run-rate cost synergies within two years of the deal closing.

The combined company will remain headquartered in The Woodlands and will have about 8,000 employees companywide and a product portfolio of more than 2,400 global patents.

Sivasankaran “Soma” Somasundaram, president and CEO of Apergy, and Jay Nutt, CFO of Apergy, will retain their roles with the combined company. Deric Bryant, executive vice president and president of Ecolab’s Upstream Energy business, will serve as COO of the combined company and will oversee ChampionX as well as the integration of the two companies. The rest of the senior leadership team will be announced later. Apergy Chairman Daniel Rabun will continue to lead the combined company’s board, which will add two new directors appointed by Ecolab.

The ChampionX backstory

The ChampionX business consists of the drilling, completion and energy production; chemistry sciences; and solutions operations currently included within Ecolab’s Energy segment. Ecolab had acquired the upstream business as part of acquisitions of Nalco Holding Co. in 2011 and Houston-based Champion Technologies Inc. in 2013, creating Nalco Champion.

But Ecolab had been working toward a spinoff of ChampionX since February 2019. Ecolab will keep its downstream energy business, which sells a different array of chemicals to refineries and petrochemical plants.

The Apergy backstory

Apergy itself was a spinoff of the upstream business of Illinois-based manufacturer Dover Corp. (NYSE: DOV). That spinoff was completed in May 2018. Apergy provides highly engineered equipment and technologies that help companies drill for and produce oil and gas.

As of Dec. 31, 2018, Apergy had 3,300 employees in nine countries. The company reported revenue of more than $1.2 billion in 2018, up about 20 percent from 2017, but the net income attributable to Apergy fell nearly 16 percent to about $94.04 million.

The players

Centerview Partners LLC and Lazard are serving as financial advisers to Apergy, and Weil, Gotshal & Manges LLP is serving as legal counsel. BofA Securities is serving as exclusive financial adviser to Ecolab, and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel.