THE WOODLANDS, Texas - Newpark Resources, Inc. (NYSE: NYSE:NR) has completed the sale of its Fluids Systems segment to private equity firm SCF Partners, the company announced today. The segment, which has been a part of Newpark's portfolio, was sold for a base price of $127.5 million, subject to adjustments.
The net consideration from the sale amounted to $56 million after accounting for a $43 million adjustment for lower working capital, accrued taxes, certain liabilities, and $10 million of debt. Newpark received $70 million in cash at closing, minus $19 million of foreign cash transferred with the business, and a $5 million interest-bearing note.
As a result of the sale, Newpark expects to realize U.S. federal net operating loss tax benefits between $7 million and $10 million, adding to its existing $20 million in tax benefits to offset future tax obligations. The Fluids Systems segment will now be reported as discontinued operations.
Post-sale, Newpark's asset-based revolving credit facility has been amended, reducing from $175 million to $100 million. With the sale's proceeds, Newpark's cash on hand is approximately $40 million, with about $55 million available under the amended credit facility. The company plans to invest the proceeds in expanding its composite matting fleet, potential acquisitions, and a share buyback program under its current $50 million authorization.
Matthew Lanigan, President and CEO of Newpark, highlighted the sale as the culmination of a two-year transformation to streamline the business and focus on specialty rental and services in the global worksite access and critical infrastructure markets. Lanigan also mentioned that the company plans to rebrand and pursue industry reclassification to better align with its strategic focus.
Deviyani Misra-Godwin, Director at SCF, praised Newpark Fluids Systems for its historical performance and expressed enthusiasm for the future value creation under SCF's ownership. David Paterson, CEO of Newpark Fluid Systems, echoed the sentiment, anticipating accelerated growth with the new partnership.
Lazard (NYSE:LAZ) acted as Newpark's financial advisor for the sale, with Baker McKenzie providing legal counsel. The company's strategic shift aims to become a leading specialty rental business, with a focus on high-margin, free cash flow-generating operations. This news is based on a press release statement from Newpark Resources, Inc.
In other recent news, Newpark Resources reported a positive second quarter, marked by a 6% increase in revenues and a 10% rise in adjusted EBITDA. This growth was largely driven by the robust performance of its Industrial Solutions business, which achieved a record $30 million in product sales. The company is currently executing a multiyear transformation plan, anticipating sustained investments in the electrical grid supported by government programs and onshoring initiatives.
Despite facing some delays in the fluid sales process, Newpark Resources is working towards a resolution by the third quarter. The company remains optimistic about the long-term demand for its services. However, the third quarter is typically the softest for rental and service revenues due to seasonal factors and some project timing remains uncertain due to delays in permitting and other issues.
Newpark Resources expects modest year-over-year growth in Q3 rental and service revenues. The company's capital allocation will focus on organic growth and a share repurchase program after completing the fluid sales process. These are among the recent developments for the company.
InvestingPro Insights
Following the strategic divestiture of its Fluids Systems segment, Newpark Resources, Inc. (NYSE: NR) is poised to reshape its business model. With a current market capitalization of $613.47 million, Newpark operates with a moderate level of debt, which aligns with its plans to invest in growth initiatives such as expanding its composite matting fleet and potential acquisitions. An InvestingPro Tip highlights that Newpark's liquid assets exceed short-term obligations, providing the company with financial flexibility post-sale.
The company's Price/Earnings (P/E) ratio stands at 26.87, reflecting investor expectations of future earnings growth, bolstered by the fact that analysts predict Newpark will be profitable this year. Additionally, with a Price/Book ratio of 1.44 as of the last twelve months leading up to Q2 2024, the stock is trading at a value that suggests it may be reasonably priced relative to its book value.
Despite a decline in revenue growth by 13.75% over the last twelve months as of Q2 2024, Newpark has been profitable over the same period, as indicated by an InvestingPro Tip. This profitability, coupled with a fair value analyst target of $11.5, suggests that there may be potential for stock price appreciation. Moreover, the recent transaction has not only streamlined Newpark's operations but also enhanced its financial health, which could be a positive signal for investors. For more detailed analysis and additional InvestingPro Tips, investors can visit https://www.investing.com/pro/NR, which currently lists 5 more tips to consider.
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