In this installment of “Anatomy of a Deal,” we discuss an oilfield services company with a vision to build a more efficient platform by offering a wider breadth of services to customers.

The Background

The lessee is an oilfield services rollup that was recently founded by industry veterans. The company is focused on acquiring smaller, specialized service providers and packaging services together to approach the market with a more comprehensive, fully integrated suite of services.

The company’s founders had seen firsthand the inefficiencies in the fragmented oilfield services space and pursued a consolidation strategy with the aim of achieving greater economies of scale, removing competition, and gaining greater pricing leverage.

The company had already completed the roll up of several services businesses, retaining the key operational staff and management of each. The combined company now offers myriad services to onshore drillers, including: thru tubing and fishing equipment and services, torque and test and surface rentals, pressure control solutions, and plug and perforation services. Additionally, the management team’s strong network in the industry provided the company with customers and contracts for continued revenue expansion.

With expansion and new contracts came the need for new machinery and capital to purchase it. As discussed in the Atalaya Leasing Insights article entitled “The Drilldown”, however, capital from traditional bank sources is often constrained for oilfield services providers due to the commodity risk exposure and industry dynamics. Additionally, for this company specifically, there was not a long track record of performance for banks to take comfort in. As a result, the company looked elsewhere – to equipment leasing – to finance its expansion.

The Deal

Atalaya, with its own capital, was able to get comfortable with the platform and industry risks and provided a capital solution to enable the company to expand its service offerings and fulfill a large new contract.

Atalaya recognized the industry and execution risks with an early-stage business, but maintained confidence in the seasoned management team with decades of oilfield services experience, to successfully execute the strategy. Additionally – while the business was early-stage as a combined entity, because of existing contracts from the acquired businesses and new customer growth, the company was already strongly profitable.

Besides the strong management team, other factors mitigating transaction risk included: the company’s diversified portfolio of products (including counter-cyclical services that positioned the company well to withstand commodity volatility), the company’s alignment via upfront equipment investment alongside Atalaya, the machinery being revenue generating, and equity support.

Atalaya ultimately helped finance the purchase of new pump down machines, helping provide the company with crucial equipment to expand and operate their services.

This deal underscores Atalaya’s ability to execute on providing capital to earlier-stage businesses where traditional banking avenues may be more challenging to navigate. In this case, Atalaya’s capital enabled the growth of an exciting business that is modernizing an industry ripe for efficiency improvement.