Land Ho! Dril-Quip Comes Ashore In $143 Million Deal

Dril-Quip Inc. (NYSE: DRQ) said Oct. 17 it plans to acquire TIW Corp., a 99-year-old family-owned manufacturer of consumable downhole products, for $143 million.

The acquisition—its first since the company was founded in 1981—diversifies Dril-Quip, enabling it to better withstand downturns.

TIW, also based in Houston, is the fourth largest liner hanger supplier behind service giants Halliburton (NYSE: HAL), Baker Hughes (NYSE: BHI) and Weatherford (NYSE: WFT). About 70% of TIW’s liner hanger system installations are onshore and predominately in the Middle East and South America.

“TIW is more levered to the international onshore cycle and gives DRQ a channel to sell its wellhead and related products onshore and TIW’s liner hanger products offshore,” J. David Anderson, senior equity analyst with Barclays Capital Inc., said in an Oct. 17 report.

With a stockpile of cash and zero debt, Dril-Quip has been on the lookout to expand its territory. The company previously expressed interest in Halliburton's expandable liner hanger business when it was marked for divestiture during the Baker Hughes merger that was terminated in May, Anderson said.

“DRQ started talking about M&A in 2015 to invest ‘counter-cyclically’ and will continue to pursue complimentary M&A, tapping into its nearly $500 million net cash war chest at the end of second-quarter 2016, which should help fill the earnings gap presented by plagued offshore activity,” he said.

Dril-Quip had about $492 million in cash as of June 30.

TIW manufactures its equipment, but isn't vertically integrated with forging operations like Dril-Quip. The company will likely continue to outsource forgings since its own are smaller than Dril-Quip’s, Anderson said.

Combined, Dril-Quip and TIW’s geographic footprint will span six continents and employ about 2,400 people. The company anticipates synergies from the combination, primarily driven by cost efficiencies and expanded sales opportunities.

In 2014, TIW reached peak revenues of about $140 million. The company’s revenue is expected to trough between $60 million and $70 million in 2016 and then rebound to between $80 million and $100 million by 2018.

Dril-Quip said it anticipates EBITDA margins to be similar to its own once synergies are realized.

Blake DeBerry, Dril-Quip’s president and CEO, said that TIW's products and services fit with and complement the company’s current product offerings.

“This acquisition will be the first in Dril-Quip’s history and allows us to use our strong balance sheet to increase shareholder value in the long-term,” DeBerry said in a statement.

With TIW, Dril-Quip also acquires some history. In April 1917, members of the Pearce family, who were blacksmiths and machinists, formed Texas Iron Works in Houston in response to a local oil boom. The company changed its name to TIW Corp. in 1991.

The transaction is expected to close during fourth-quarter 2016, subject to regulatory approvals and customary closing conditions. TIW will continue to market its product and services under the TIW Corp. name, Anderson said.

Evercore was exclusive financial adviser to Dril-Quip for the transaction. PPHB acted as TIW's exclusive financial adviser.

Emily Moser can be reached at emoser@hartenergy.com.