Value of Deal..
The way to look at the deal is on an EV/EBITDA basis as the industry and Bay/Wall St. look at it..
123mln shares o/s of the combined entity plus the $65mln in assumed debt. At $2 a share the EV is $311mln and they said 2010 EBITDA was $55mln.
Thus, 2010 EV/EBITDA is 5.65x.
Assume cost cutting, margin expansion synergies and 10% growth in 2011 so EBITDA is $65mln.. Not hard to assume coming strong out of a cyclical bottom.
2011e EV/EBITDA is 4.8x vs. 7.3x for the drilling service sector as per Peters & Co. last March valuation table I have.
MY TARGET IS $2.65 USING A 6.0X MULTIPLE ON 2011E EBITDA OF $65MLN. I ASSUME MULTIPLE EXPANSION BECAUSE OF IT'S INCREASED SIZE AND SCALE AND THAT IS SHOULD BE VALUED CLOSER TO THE INDUSTRY AVERAGE.