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BUSINESS ACQUISITIONS | 9 Months Ended
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Sep. 30, 2023
BUSINESS ACQUISITIONS |
BUSINESS ACQUISITIONS | 3. BUSINESS ACQUISITION Effective July 1, 2023 (Effective Date), the Company completed its acquisition of all of the outstanding equity interests in Spinnaker Oilwell Services, LLC (Spinnaker), pursuant to a Merger Agreement (Merger Agreement) with Catapult Energy Services Group, LLC, as the representative of the Sellers. Spinnaker, headquartered in Oklahoma City, Oklahoma, is a leading provider of oilfield cementing services in the Permian and Mid-Continent basins. Spinnaker operates two facilities located in El Reno, Oklahoma and Hobbs, New Mexico and maintains 18 full-service cementing spreads. This acquisition significantly expanded RPC's cementing business from its presence in South Texas to basins in which it currently provides other services. Spinnaker is included in our Technical Services Segment. The purchase price was $79.3 million for 100 percent of Spinnaker’s equity, and consisted of approximately $76.8 million in cash, a $2.0 million pay-off of capital lease liabilities together with an assumption of $518 thousand of capital lease liabilities. The Merger Agreement includes a post-closing adjustment window for an agreed-upon level of Spinnaker’s working capital, as well as other usual and customary items, which is reflected in the purchase price allocation below and expected to be finalized during the fourth quarter of 2023. Acquisition-related transaction costs of $767 thousand were recorded during the nine months ended September 30, 2023, and included in Selling, general and administrative expenses in the Consolidated Statements of Operations. The acquisition was funded with cash on hand. The acquisition was accounted for as a business combination with the assets acquired and liabilities assumed measured at their fair values as of the acquisition date, primarily using Level 3 inputs. The acquisition consideration allocation below is preliminary, pending finalization of the working capital settlement and the final review of certain assets’ fair value. The excess of the acquisition consideration over the estimated fair values of the acquired assets and assumed liabilities has been assigned to goodwill which is primarily attributable to expected revenue synergies. As additional information becomes available, we may further revise the preliminary acquisition consideration allocation during the remainder of the measurement period, which will not exceed twelve months from the closing of the acquisition. Such revisions or changes, if any, are currently not expected but may be material. ​
​ | ​ | ​ | ​
​ | ​ | Preliminary Fair Value
(in thousands) | ​ | as of July 1, 2023
Accounts receivable | ​ | $ | 12,836
Inventories | ​ | ​ | 1,373
Prepaid and other current assets | ​ | ​ | 384
Accounts payable | ​ | ​ | (4,499)
Property, plant and equipment | ​ | ​ | 37,374
Operating lease right-of-use assets | ​ | ​ | 46
Current portion of operating lease liabilities | ​ | ​ | (31)
Long-term operating lease liabilities | ​ | ​ | (15)
Finance lease right-of-use assets | ​ | ​ | 1,165
Current portion of finance lease liabilities | ​ | ​ | (247)
Long-term finance lease liabilities | ​ | ​ | (944)
Goodwill | ​ | ​ | 18,674
Other intangibles | ​ | ​ | 13,200
Total consideration | ​ | ​ | 79,316
Less: Assumption of capital lease liabilities (1) | ​ | ​ | (518)
Total cash consideration | ​ | $ | 78,798
​ | ​ | ​ | ​
(1) Disclosed as part of Accrued expenses and other current liabilities on | ​ | ​ | ​
the Consolidated Balance Sheet as of September 30, 2023. | ​ | ​ | ​
​ The fair value of receivables acquired approximates the gross contractual value. The contractual amount not expected to be collected is immaterial. The fair value of acquired inventory was based on the lower of cost and net realizable value, with cost determined using the weighted-average cost method. Property, plant and equipment is comprised of buildings and leasehold improvements, machinery and equipment, vehicles, land, and information technology. The preliminary estimated fair value was determined using the cost and market approaches. The Company assumed the following leases and obligations as of the Effective Date - a finance lease for certain land and facilities with a remaining lease term of approximately 4.5 years; three spreads under failed sale and lease back arrangements with varying expiration dates; and an operating lease for an office space with a remaining lease term of approximately 1.5 years. There were no favorable or unfavorable market terms for the leases. Acquired intangible assets include customer relationships, tradenames and trademarks. Intangible assets were valued using the multi-period excess earnings and relief-from-royalty methods, both forms of the income approach which considers a forecast of future cash flows generated from the use of each asset. The following table shows the preliminary fair values assigned to identifiable intangible assets: ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Weighted-Average
(in thousands) | ​ | Fair Value | Amortization Period (Years)
​ | ​ | ​ | ​ | ​ | ​
Customer Relationships | ​ | $ | 10,000 | ​ | 10
Trade Names and Trademarks | ​ | ​ | 3,200 | ​ | 10
Total Amortizable Intangible Assets | ​ | $ | 13,200 | ​ | ​
​ Revenues and Net income of Spinnaker included in the Company's Consolidated Statements of Operations from the acquisition date are as follows: ​
​ | ​ | ​ | ​
(in thousands) | ​ | Three months ended September 30, 2023
Revenues | ​ | $ | 22,173
Net income | ​ | ​ | 1,761
​ Spinnaker’s duration of contracts is typically a day or less and their contract assets and liabilities are measured similar to RPC’s other businesses. The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Spinnaker and RPC. This proforma financial information does not necessarily represent what the combined company’s revenues or results of operations would have been had the acquisition been completed on January 1, 2022, nor do they intend to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Spinnaker and RPC. ​ ​ The following table provides unaudited supplemental pro forma financial information as if the acquisition had occurred on January 1, 2022. ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended September 30,
(in thousands) | ​ | ​ | 2023 | ​ | 2022
Revenues | ​ | $ | 330,417 | $ | 482,779
Net income | ​ | ​ | 18,317 | ​ | 73,405
​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine months ended September 30,
(in thousands) | ​ | ​ | 2023 | ​ | 2022
Revenues | ​ | $ | 1,274,700 | $ | 1,183,765
Net income | ​ | ​ | 163,951 | ​ | 143,075
​

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