Business Acquisition

12 Months Ended

Dec. 31, 2023

BUSINESS ACQUISITIONS

Business Acquisition

Note 2: 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% of Spinnaker’s equity, and consisted of approximately $76.8 million in cash, a $2.0 million pay-off of finance obligations together with an assumption of $518 thousand of finance obligations. The Merger Agreement included 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 was finalized during the fourth quarter of 2023. Acquisition-related transaction costs of $767 thousand were recorded during the year ended December 31, 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 the final 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. During the fourth quarter, we finalized the valuation of the acquired assets and closed the measurement period.

	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 finance obligations		(518)
Total cash consideration	$	78,798

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 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. Details regarding the lease costs and remaining lease obligations on the existing leases related to Spinnaker have been included in the footnote titled Leases. The obligations related to failed sale and leaseback arrangements are being reported as part of current portion of finance lease liabilities and finance obligations.

Acquired intangible assets include customer relationships, trade names 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 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 Statement of Operations from the acquisition date are as follows:

(in thousands)	Six months ended December 31, 2023
Revenues	$	44,830
Net income		4,727

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.

(in thousands)		2023		2022
Revenues	$	1,669,231	$	1,689,559
Net income		204,222		234,284