Archrock (AROC) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition expands contract compression operations, deepens presence in the Permian Basin, and adds 580,000 horsepower of young, high-quality electric motor drive assets, including 500,000 operating horsepower and a contracted backlog of new equipment.

• Accelerates electrification strategy, supporting emissions reduction and sustainability goals, and aligns with industry trends toward lower carbon solutions.

• Increases Permian Basin compression capacity by 30% to 2.2 million operating horsepower, with the basin representing 52% of total operating horsepower.

• Deepens relationships with blue-chip E&P customers, adds new customers, and increases exposure to gas lift applications, raising fleet share from 21% to 30%.

• Complements existing gas lift and gathering compression operations, leveraging extensive electrical expertise.

Financial terms and conditions

• Total consideration of $983 million: $826 million in cash and 6.87 million newly issued shares, funded through a mix of equity and debt.

• Transaction multiple of 7.3x Q3 2024 annualized Adjusted EBITDA ($136 million), below current trading multiple, with no synergies assumed.

• Commitment to maintain leverage ratio between 3x and 3.5x.

• Pro forma enterprise value will exceed $6 billion, with pro forma operating horsepower of approximately 4.1 million.

Synergies and expected cost savings

• No immediate cost synergies targeted; focus is on accretive growth and leveraging operational density for future efficiencies.

• Anticipated synergies represent further upside to projected financials, with high fleet utilization and lower maintenance capital expenditures expected due to electric motor drive assets.