Sale to Minnesota firm adds to Simmons’ reach
Simmons & Company International’s $139 million sale to Piper Jaffray will rope in several new businesses for the Houston energy investment bank, including a debt advisory group and a restructuring unit, at a time when more oil and gas balance sheets need repairs.
The cash and stock deal, announced this week, would fold one of the few private energy-oriented investment banks based in Houston into Piper Jaffray, a Minneapolis-based publicly traded company that doesn’t now have a footprint in the energy business but does have debt advisory and restructuring services.
“Being able to come in with a set of experts in debt advisory will be a very important touch point,” said Fred Charlton, a Simmons managing director who will serve as Piper Jaffray’s chairman and co-head of energy investment banking once the deal is closed. “It might be unfortunate, but some of those conversations might even lead to the need to restructure.”
Simmons will continue operating under the same name, the firms said.
During the yearlong oil market slump, energy investment banking has profited in some areas and waned in others. Investment banks have helped energy companies raise cash through equity sales known as overnight sessions that take a fraction of the time of a traditional offering. But corporate mergers have slowed, because buyers and sellers can’t agree on what a company is worth while oil and gas
prices remain in flux.
Now, as low oil prices leave their mark on company balance sheets, there’s more work in advising companies on debt capital market strategies and, if it comes to it, going into bankruptcy or liquidating assets.
Oil field services companies have been hit especially hard as demand for their drilling tools and completion crews has dropped along with the nation’s plunging active rig count.
The 41-year-old Simmons & Co., which has 170 investment bankers, traders, researchers and private equity professionals, will benefit from Piper Jaffray’s capability to run overnight equity offerings. Such transactions fueled a $14 billion capital market splurge in the energy sector in the spring, when investors expected a quick oil-market recovery.
“The timeliness is clear given the situation in the energy business today,” Charlton said of the deal.
For Piper Jaffray, the transaction gives it access to one of the two sectors — energy and banking — it has wanted to enter in its efforts to boost its investment banking revenue to $500 million annually.
The two companies met informally in 2011 but didn’t start any official deal talks until a year or two ago, sometime before Simmons’ revenue began to take a hit from lower energy sector activity.
Simmons’ revenue was $96 million in the year ended June 30 — down from around $120 million in prior years when the energy sector was more prosperous.
Charlton noted that Simmons’ energy transportation, refining and international advisory businesses have remained active throughout the oilprice downturn, and more work has come from U.S. oil producers undergoing semiannual bank reviews of their debt.
But he said the most important aspect of the deal is that the firm’s senior professionals have signed agreements to stay with the merged company. Piper Jaffray said it is paying $21 million in cash and stock to retain key Simmons personnel.