8-K/A: Star Equity Holdings Completes Acquisition of Alliance Drilling Tools, LLC

Star Equity Holdings finalizes the acquisition of Alliance Drilling Tools, LLC, providing pro forma financial statements reflecting the combined entity.

Summary

• Star Equity Holdings, Inc. acquired Alliance Drilling Tools, LLC (ADT) on March 3, 2025.
• This report includes Amendment No. 2 to the Current Report on Form 8-K/A, providing historical financial statements and unaudited pro forma financial information related to the acquisition.
• The audited financial statements of Alliance Drilling Tools, LLC as of and for the years ended December 31, 2024 and December 31, 2023 are included.
• Unaudited pro forma condensed combined financial statements of Star Equity Holdings, Inc. as of December 31, 2024 are also provided.
• The pro forma statements give effect to the transaction as if it had occurred on January 1, 2024.
• The pro forma adjustments include adjustments to assets and liabilities to fair value as of March 3, 2025.
• The pro forma adjustments include depreciation and amortization on the fair values of property, plant and equipment and intangible assets to reflect additional depreciation and amortization expense for 2024, amounting to $1,165,000.
• The pro forma adjustment represents cash paid for the acquisition of approximately $1,956,000 and the total $2,229,000 Austin Financial Services, Inc. (Austin) debt entered into in connection with the acquisition.
• The pro forma adjustment includes amounts held back for indemnity and working capital of $1,250,000.
• The pro forma adjustment also represents 775,000 shares of Star Equity Series A Preferred Shares exchanged as part of the acquisition price, which had a fair value of $7,044,750 as of the acquisition date.
• The difference between the amounts paid for the acquisition and ADT's December 31, 2024 historical equity is reflected in Goodwill.
• The income tax adjustment recorded in these pro forma unaudited condensed combined financial statements reflect the release of Star's valuation allowance against the net deferred tax liabilities recorded in connection with the ADT purchase accounting entries, as well as an additional tax benefit for the utilization of Star's net operating losses against ADT's 2024 income, amounting to a decrease in tax expense and a decrease in deferred tax liability of approximately $2,130,000.
• Assumed interest on the Austin debt is approximately $206,000 in 2024.

Sentiment

Score: 7

Explanation: The document is factual and reports on a completed acquisition. The sentiment is neutral to slightly positive as the acquisition expands Star Equity's business, but there are also risks associated with integration and preliminary purchase price allocation.

Positives

• The acquisition of Alliance Drilling Tools, LLC expands Star Equity Holdings' business.
• The pro forma financial statements provide insight into the combined financial position and results of operations.
• The income tax adjustment recorded in these pro forma unaudited condensed combined financial statements reflect the release of Star's valuation allowance against the net deferred tax liabilities recorded in connection with the ADT purchase accounting entries, as well as an additional tax benefit for the utilization of Star's net operating losses against ADT's 2024 income, amounting to a decrease in tax expense and a decrease in deferred tax liability of approximately $2,130,000.

Negatives

• The purchase price allocation is preliminary and subject to change, which could impact the final amounts recorded for the acquisition.
• The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of our consolidated results of operations or financial position that we would have reported had the acquisition of ADT been completed as of the date presented and should not be taken as a representation of our future consolidated results of operations or financial position.

Risks

• The integration of Alliance Drilling Tools, LLC into Star Equity Holdings could present operational and financial challenges.
• The preliminary nature of the purchase price allocation introduces uncertainty in the reported financial results.
• The pro forma financial information may not be indicative of future performance.

Future Outlook

The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of our consolidated results of operations or financial position that we would have reported had the acquisition of ADT been completed as of the date presented and should not be taken as a representation of our future consolidated results of operations or financial position.

Industry Context

The acquisition of Alliance Drilling Tools, LLC allows Star Equity Holdings to expand its presence in the energy services sector, specifically within the drilling equipment supply and repair business.

Comparison to Industry Standards

• It's difficult to provide a precise comparison to industry standards without knowing the specific size and focus of Alliance Drilling Tools, LLC relative to its competitors.
• However, key competitors in the drilling tools and equipment rental market include companies like Schlumberger, Halliburton, and Baker Hughes.
• These larger companies typically have significantly higher revenue and broader service offerings.
• A more relevant comparison might be to smaller, regional players in the drilling equipment supply and repair market, but specific financial data for these companies is often not publicly available.

Stakeholder Impact

• Shareholders: The acquisition could impact shareholder value depending on the success of the integration and the performance of the combined entity.
• Employees: Potential changes in roles and responsibilities as the two companies integrate.
• Customers: Access to a broader range of products and services.
• Suppliers: Potential changes in procurement and supply chain management.
• Creditors: Changes in the combined company's debt profile.

Next Steps

• Finalize the valuation of assets and liabilities of Alliance Drilling Tools, LLC as of the acquisition date, no later than one year from the acquisition date.
• Integrate Alliance Drilling Tools, LLC into Star Equity Holdings' operations.

Key Dates

Keywords

acquisition, pro forma, financial statements, Alliance Drilling Tools, Star Equity Holdings, drilling tools, merger