As it announces the largest acquisition in its history, Diversified Energy Company PLC (LSE:DEC, NYSE:DEC) is a ‘buy’, according to stockbroker Peel Hunt.
DEC has not been a stranger to deal-making as M&A has driven much of its growth since it floated on the London Stock Exchange in 2016 – when it came to market with a $50 million raise and a £69 million market cap.
Today, acquiring Maverick Natural Resources for its portfolio of Anadarko and Permian basin assets, in a deal worth $1.2 billion, the London-listed firm is practically set to double in size.
DEC today announced the deal that takes production to around 200,000 boepd and boosts revenue by 95% (and free cash flow by 55%).
Peel Hunt analyst Sam Wahab described the acquisition metrics as ‘compelling’ and highlighted that the deal transforms DEC, in terms of scale, and also materially enhances margins.
“Today’s proposed transaction represents a significant deal for DEC, marking the company as the largest consolidator of mature assets in the US,” Wahab said in a note.
Whilst the analyst noted that his model will need updating to account for the transformational deal, he currently rates DEC as a ‘Buy’ with a price target of £30.00, compared to Monday’s share price of £13.03.
Creates long-term cash generation
DEC, in this morning’s statement, told investors that the deal adds immediate scale, increases liquids production, and creates a combined company with long-term free cash flow generation, superior unit cash margins, and a compelling sustainability profile.
It sees the production profile increase to around 200,000 barrels of oil equivalent per day.
"This acquisition expands our unique and highly focused energy production company with a complementary portfolio of attractive, high-quality assets,” chief executive Rusty Hutson said in a statement.
“We have a proven track record of unlocking value from acquisitions while maintaining our commitment to sustainability leadership, and this acquisition provides us with great assets and employees that complement this strategy.”
“The acquired producing assets have demonstrated leading well performance and are a natural fit with our operating advantage and existing acreage.”
Hutson added: “Notably, the combined footprint in Oklahoma and the Western Anadarko Basin creates one of the largest in terms of production and acreage, which includes the emerging Cherokee formation.”
Meanwhile, Maverick chief executive Rick Gideon said: Maverick has built a strong foundation of execution and efficiency across our portfolio, and we look forward to combining our complementary portfolio of assets with Diversified.”
What’s in the deal?
To acquire Maverick, DEC is to assume some $700 million of the company’s debt plus a mix of cash and shares to satisfy the balance ($207 million of cash, $345 million of shares).
The combined company will be led by Rusty Hutson.
It is expected that the transaction will close in the first half of 2025.