8-K: Cactus, Inc. to Acquire Controlling Stake in Baker Hughes' International Surface Pressure Control Business, Bolstering Global Footprint and Financial Outlook

Cactus, Inc. announced its subsidiary will acquire a 65% controlling interest in Baker Hughes' Surface Pressure Control business for $344.5 million, significantly expanding its international presence and diversifying its revenue streams.

Summary

• Cactus Companies, LLC, a subsidiary of Cactus, Inc., has entered into a Framework Agreement to acquire a 65% controlling interest in Baker Hughes' Surface Pressure Control (SPC) business from Baker Hughes Holdings LLC.
• The cash purchase price for the 65% interest is $344.5 million, based on a total enterprise value of $530 million for the SPC business on a cash-free, debt-free basis, subject to customary post-closing adjustments.
• Cactus plans to fund the acquisition using approximately $348 million in cash on hand as of March 31, 2025, and funds from its undrawn $225 million revolving credit facility, with potential debt financing to preserve liquidity.
• Baker Hughes will retain a 35% ownership interest in the newly formed Joint Venture (JV) that will hold the SPC business.
• The Framework Agreement includes an exit option allowing Cactus to acquire, or Baker Hughes to compel Cactus/SPC to acquire, the remaining 35% interest after the second anniversary of the closing, with a purchase price based on 6x Adjusted EBITDA, subject to a maximum valuation of $660 million and a minimum of $530 million if Cactus elects to acquire.
• The SPC business specializes in designing, manufacturing, and servicing surface pressure control solutions, primarily wellheads and production tree equipment, for international markets.
• For the year ended December 31, 2024, the unaudited SPC business reported $498 million in revenue and $87 million in Adjusted EBITDA, with a backlog exceeding $600 million.
• Approximately 85% of SPC's revenues are generated in the Middle East, with no material U.S. external sales, providing significant geographic diversification for Cactus.
• The transaction is expected to close in the second half of 2025, subject to customary closing conditions and regulatory approvals.
• Annualized cost synergies of approximately $10 million are expected to be achieved within 12 months of closing.

Sentiment

Score: 9

Explanation: The document presents a highly positive outlook on the acquisition, emphasizing strategic benefits such as geographic diversification, financial accretion, significant backlog, and strong synergy potential, with no explicit negative aspects or significant delays mentioned.

Positives

• The acquisition establishes Cactus as a premier, capital-light, and geographically diversified oilfield equipment manufacturer, expanding its reach into key international markets.
• The transaction transforms Cactus's geographic footprint, with SPC's ~85% Middle East revenue providing a more diverse and stable consolidated revenue profile through market cycles.
• The substantial backlog of over $600 million as of December 31, 2024, for SPC provides greater revenue, earnings, and cash flow visibility.
• The acquisition is expected to be highly accretive to financial metrics while allowing Cactus to maintain a conservative balance sheet.
• The partnership with Baker Hughes in the Joint Venture is anticipated to facilitate a smooth transition of administrative services and critical customer relationships and long-term contracts.
• Cactus's leadership team has prior familiarity with the acquired assets (former Wood Group Pressure Control), increasing confidence in efficient business operation and optimization.
• Opportunities exist to enhance the supply chain and leverage Cactus's expanding global low-cost manufacturing footprint to drive improved financial returns.
• The transaction provides improved access to important new non-tariff impacted markets for both Pressure Control and Spoolable Technologies products, supporting continued growth and revenue stabilization.

Risks

• The completion of the transaction is subject to customary closing conditions, including the expiration or termination of waiting periods under competition laws and obtaining all regulatory clearances.
• There are inherent risks and uncertainties surrounding future expectations, including unanticipated challenges related to the proposed acquisition.
• The ability to realize the expected benefits and synergies from the acquisition is not guaranteed.
• General risk factors noted in Cactus, Inc.'s annual and quarterly reports filed with the SEC could affect actual results.

Future Outlook

The transaction is expected to close in the second half of 2025, subject to regulatory approvals. Cactus anticipates achieving approximately $10 million in annualized cost synergies within 12 months of closing. The acquisition is projected to provide greater revenue, earnings, and cash flow visibility due to SPC's substantial backlog and is expected to diversify and stabilize Cactus's revenue streams through market cycles, accelerating growth in new international markets.

Management Comments

• Scott Bender, Chairman and CEO of Cactus, commented, 'I am extremely pleased to announce this acquisition today, which is the result of a long, exhaustive process to responsibly enter several of the most important oil and gas markets in the world.'
• Bender added, 'The SPC Business meets all of our acquisition criteria. Its geographic footprint is highly complementary to Cactus existing business, and this combination enables us to expand our reach as a capital-light manufacturer of highly-engineered products sold directly to end users.'
• Bender also stated, 'Our leadership teams familiarity with the Business, which operates former Wood Group Pressure Control assets that members of our team previously managed, provides increased confidence in operating the business efficiently.'
• Bender noted, 'We are excited to partner with Baker Hughes in the Joint Venture operating SPC, as their partnership will be instrumental to transition key administrative services and will assist in a smooth transition of critical customer relationships and long-term contracts.'
• Bender concluded, 'We look forward to operating this business with the same focus on margins, returns and customer execution that you have come to expect of Cactus, with the goal of increasing long-term value for shareholders.'

Industry Context

The acquisition positions Cactus to capitalize on the resilience of Middle East onshore wells, which offer some of the lowest breakeven costs per barrel globally. By acquiring a business with ~85% of its revenue from the Middle East and no material U.S. external sales, Cactus is strategically diversifying away from its predominantly U.S. onshore focus, aligning with broader industry trends towards international market stability and capital-light manufacturing models in the oilfield equipment sector.

Comparison to Industry Standards

• The document highlights that Middle East onshore wells have the lowest breakeven costs per barrel, as per Rystad Energy data as of October 2024, indicating a strategic alignment with resilient oil and gas markets.
• The acquisition is described as establishing Cactus as a 'premier, capital-light' manufacturer, suggesting a business model that is efficient and adaptable compared to more capital-intensive industry peers, though no specific comparable companies are named.

Management Changes

Corporate Governance

Related Party Transactions

• The formation of the Joint Venture itself constitutes a significant related party transaction between Cactus and Baker Hughes.
• The LLC Agreement details provisions for 'Affiliate Contracts' (transactions between the Company/Subsidiaries and a Member/Affiliate), requiring affirmative consent from a majority of disinterested Directors for non-arms-length transactions.
• The agreement includes specific terms for 'Cobra Support Services' (general and administrative functions provided by Cactus or its Affiliates to the Company), with provisions for record-keeping and audit access.

Stakeholder Impact

• Shareholders: Expected to benefit from increased long-term value through strategic diversification, accretive financial metrics, and potential for continued capital returns.
• Employees: The SPC business has ~1,100 employees; the transaction involves a transition of employment, with provisions for 'Continuing Service Providers' and 'GESA Employees' (Global Employee Services Agreement) and specific terms for compensation and benefits post-closing.
• Customers: The partnership with Baker Hughes is intended to assist in a smooth transition of critical customer relationships and long-term contracts, particularly given SPC's substantial backlog and international presence.
• Suppliers: Potential for enhanced supply chain optimization and improved financial returns through Cactus's specialized knowledge and global manufacturing footprint.

Next Steps

• Obtain necessary regulatory clearances and satisfy customary closing conditions.
• Complete the transaction, expected in the second half of 2025.
• Integrate the SPC business and realize approximately $10 million in annualized cost synergies within 12 months of closing.
• Potentially pursue debt financing transactions prior to closing to preserve liquidity.
• Cactus has the right to purchase, and Baker Hughes has the right to compel Cactus/SPC to purchase, the remaining 35% interest after the second anniversary of closing.

Key Dates

Recommendation

Keywords

Cactus Inc, Baker Hughes, acquisition, joint venture, oilfield equipment, pressure control, wellheads, production trees, Middle East, international expansion, oil and gas services, energy sector, strategic partnership, financial diversification