Dril-Quip (DRQ) and Innovex to Combine

Dril-Quip, Inc. (NYSE: DRQ), (“Dril-Quip”), a leading developer, manufacturer and provider of highly engineered equipment and services for the global offshore and onshore oil and gas industry, and Innovex Downhole Solutions, Inc. (“Innovex”), a global leading provider of mission-critical technologies and services across the well lifecycle for the oil and gas industry, today announced a definitive agreement under which Dril-Quip and Innovex will merge in an all-stock transaction to create a unique energy industrial platform. Upon closing of the transaction, Dril-Quip stockholders will own approximately 52% and Innovex stockholders will own approximately 48% of the combined company on a fully diluted basis.

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The combination brings together the two companies’ complementary and curated product portfolios, best-in-class safety, service quality, global infrastructures and customer relationships. With a large suite of highly engineered technologies, the combined company will provide customers with innovative solutions for both onshore and offshore applications, driving a more stable and diverse revenue mix. The combined company is expected to derive approximately 56% of its revenue from the international and offshore markets and approximately 44% from the North American onshore markets (U.S. and Canada) and would have more than $1.0 billion in annual revenue and $221 million in adjusted1 Earnings Before Interest, Taxes, Depreciation, and Amortization (“adjusted EBITDA”) including synergies in fiscal 2023 (all figures on a pro forma, full-year 2023 combined basis). The combined company will have a strong balance sheet with a pro forma, year-end 2023 net cash position of $99 million2.

Dril-Quip President and Chief Executive Officer Jeffrey Bird said: “I’m excited for the opportunities this transaction will provide Dril-Quip’s stakeholders. This transaction is aligned with the growth strategy we have been pursuing and will advance our position as a leading developer and provider of highly engineered and innovative equipment, services and technologies for the global oil and gas industry. The multi-decade legacy and strong reputation of Dril-Quip’s technology, brand and expertise, paired with the customer-centric, innovative and execution-oriented cultures of both companies will help us continue to manufacture and deliver innovative products and service to our customers and create opportunities for our employees. Additionally, the complementary global scale and product breadth of the combined company will provide a strong platform for organic revenue growth, strong EBITDA margins and the potential for significant free cash flow generation to drive value for our stockholders.”

Innovex Chief Executive Officer Adam Anderson said: “We are bringing together the great traditions and capabilities of Dril-Quip with Innovex’s proven operating model. By empowering the combined organization using Innovex’s collaborative ‘No Barriers’ culture, we will unleash the capabilities of the combined company to create a unique energy industrial platform with durable margins, low capital intensity and the potential for superior returns on capital throughout industry cycles.”

“This combination creates a scaled enterprise with a long history of value-added product development,” said John V. Lovoi, Dril-Quip’s Chairman of the Board. “In addition, the two companies possess unique strengths which we believe will drive meaningful revenue pull-through in coming years in the most important oil and gas producing regions globally. Following the integration of the two businesses, the pro forma financial metrics are expected to result in a very favorable growth and return profile for our stockholders.”

Standalone and Pro Forma Financial Metrics (full-year 2023)

The following table provides an overview of the key, full-year 2023 financial metrics for standalone Dril-Quip and Innovex and the pro forma combined company3 ($ million, except EPS):

Strategic and Financial Benefits

The combination is expected to:

• Provide substantial and immediate earnings and free cash flow accretion, with anticipated pro forma adjusted EBITDA margins in excess of 20%, including synergies.
• Achieve annual cost synergies of approximately $30 million within 24 months after the transaction closes (with the expectation that approximately 50% of the annual cost synergies will be realized within 12 months).
• Accelerate the marketing of Dril-Quip’s leading onshore Canadian wellhead business (Great North) in the U.S. onshore market through Innovex’s operational and sales infrastructure.
• Enable the growth of Innovex’s broad downhole tools portfolio across the large Canadian onshore market through Dril-Quip’s strong Canadian footprint and customer relationships.
• Leverage Dril-Quip’s leading subsea expertise, brand name and customer relationships to facilitate further market penetration of Innovex’s existing deepwater well construction portfolio.
• Create the opportunity to cross-sell Innovex’s products alongside select Dril-Quip offerings.
• Increase the company’s global scale and footprint across several growing markets (including Saudi Arabia, Mexico, South America and the Asia Pacific region).
• Create a more flexible and lean manufacturing footprint to deliver cost-effective and high-quality mission-critical products.
• Utilize best-in-class research and development capabilities to deliver next-generation, innovative products and to position the combined company at the forefront of energy technologies and solutions.

Pro Forma Company Leadership and Governance

Upon closing of the transaction, Innovex Chief Executive Officer Adam Anderson will become Chief Executive Officer of the combined company and will join its Board of Directors. Kendal Reed, current Chief Financial Officer of Innovex, will serve as Chief Financial Officer of the combined company. The remainder of the combined company’s leadership team is expected to include executives from both Dril-Quip and Innovex.

Upon closing, the Board of Directors of the combined company will consist of nine directors, comprising four independent directors from the current Dril-Quip Board, four directors from the current Innovex Board, and Chief Executive Officer Adam Anderson, with John V. Lovoi, Dril-Quip’s current Chairman of the Board, serving as Chairman of the combined company’s Board.

Innovex is majority owned by funds affiliated with Amberjack Capital Partners, L.P. (“Amberjack”), a specialized private equity firm that invests in and partners with entrepreneurs and management teams to build market leaders serving the energy, infrastructure and industrial end markets. At closing, Amberjack will own approximately 43% of the combined company.

Upon closing of the transaction, Dril-Quip has agreed to enter into a registration rights agreement and a stockholder agreement with Amberjack, under which Amberjack will be subject to certain stockholder restrictions and will be provided with specified director nomination rights with respect to the shares of Dril-Quip received as transaction consideration. Additional details regarding the registration rights agreement and stockholder agreement will be provided in Dril-Quip’s filings with the Securities and Exchange Commission.

Immediately following the completion of the transaction, the name of the combined company will change to Innovex International, Inc., and its common stock is expected to trade on the New York Stock Exchange under a new ticker symbol, “INVX”. Dril-Quip’s offshore products will retain their current brand names within the combined company.

The combined company will be headquartered in Houston, Texas.

Timing and Approvals

The transaction has been approved by the boards of directors of both companies and is expected to close in the third quarter of 2024. The closing of the transaction is subject to customary closing conditions including regulatory approval and approval by Dril-Quip’s stockholders.

Advisors

Citi is serving as lead financial advisor and Morgan Stanley & Co. LLC is serving as co-financial advisor to Dril-Quip. Gibson, Dunn & Crutcher LLP is serving as Dril-Quip’s legal advisor.

Goldman Sachs & Co. LLC is serving as lead financial advisor and Piper Sandler Companies is serving as co-financial advisor to Innovex. Akin Gump Strauss Hauer & Feld LLP is serving as Innovex’s legal advisor with assistance from Paul Hastings LLP.

Conference Call and Webcast

Dril-Quip and Innovex management will host a conference call and simultaneous webcast to discuss the transaction on Tuesday, March 19, 2024, 7:00 a.m. Central Time. The presentation is open to all interested parties and may include forward-looking information.

To access the call, please dial in approximately ten minutes before the start of the call.

For those unable to participate in the live call, an audio replay will be available following the call through midnight, Tuesday, April 2, 2024. To access the replay, please call 877-481-4010 or 919-882-2331 (International) and enter replay passcode 50140. A replay of the webcast will also be archived shortly after the call and can be accessed on Dril-Quip’s website.

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