01:27:55 EDT Wed 29 May 2024
Enter Symbol
or Name

Login ID:
Cathedral Energy Services Ltd
Symbol CET
Shares Issued 242,025,172
Close 2023-07-11 C$ 0.69
Market Cap C$ 166,997,369
Recent Sedar Documents

Cathedral acquires Rime Downhole for $41M (U.S.)

2023-07-11 18:16 ET - News Release

Mr. Tom Connors reports


Cathedral Energy Services Ltd. has acquired Rime Downhole Technologies LLC through a wholly owned subsidiary for an aggregate purchase price of approximately $41-million (U.S.) (approximately $55-million (Canadian)) composed of $21-million (U.S.) in cash and $20-million (U.S.) in subordinated exchangeable promissory notes that are exchangeable into a maximum of 24.57 million common shares of Cathedral.

Rime is a Texas-based engineering company founded in 2012 that specializes in building products for the downhole measurement-while-drilling (MWD) industry. Rime offers a broad array of proprietary MWD components, including pulsers, pulser drivers, shock isolators and gamma modules. Rime's Slick-HD pulser and Agilis driver are the leading pulser solutions in the U.S. onshore marketplace.

Tom Connors, president and chief executive officer of Cathedral, stated: "We are pleased to welcome Rime's employees and principals to Cathedral, and are excited to expand the technical moat around our business with their high performance products and capabilities. With technology that has a reputation for high reliability and standard-setting performance, Rime has forged strong market share and broad market acceptance, which includes adoption by many of the larger and more active players in the industry. We will continue to operate Rime as an independent brand and support the sale of industry-leading technology to a broad customer base, including some of our competitors. The founders of Rime, Mr. Manoj Gopalan, president, and Mr. Robert Weber, senior vice-president, will continue to lead the business and will add significant depth to our engineering and technology efforts as we further differentiate our product offering in the market."

Mr. Gopalan and Mr. Weber commented: "We are aligned with the strategy of Cathedral and felt it gave us the best opportunity to grow our business and our technology. We are confident that with this partnership we will continue to support our customers with the same great products, service, dedication and focus they've come to expect from Rime. Rime only becomes stronger with the resources of Cathedral behind it."

Mr. Connors further added: "The addition of Rime's proprietary MWD products completes Cathedral's U.S. directional drilling platform with the full suite of premier directional services technologies demanded by our customers. Given the high level of market acceptance and recognition of Rime technology, we anticipate a relatively efficient rollout of a commercial MWD platform into our U.S. directional drilling business over the next 12 to 18 months. Cathedral will invest $5-million (U.S.) to $10-million (U.S.) to build Cathedral-owned MWD equipment and reduce our reliance on renting third party MWD products, resulting in significantly enhanced adjusted [net income before finance costs, unrealized foreign exchange on intercompany balances, income tax expense, depreciation, amortization, non-recurring costs (including acquisition and restructuring costs), writedown of inventory and share-based compensation] and stronger margins."

Transaction highlights:

  • Provides Cathedral with industry-leading proprietary MWD products: Cathedral estimates that approximately 40 per cent of the active drilling rigs in the onshore United States are currently operating with either Rime's complete Slick-HD pulser or Agilis driver on a stand-alone basis.
  • Strong adjusted EBITDAS margins and minimal capital requirements: Based on consistent historical results, low requirement for capital investment and current outlook, Rime is expected to generate strong margins and consistent levels of adjusted EBITDAS.
  • Significant expected synergies through integration with Cathedral's U.S. operations: Based on Altitude Energy Partners LLC' MWD rental expenses in 2022, Cathedral estimates potential annual synergies of up to $34-million can be realized by reducing Cathedral's reliance on renting third party MWD products through a potential incremental investment of up to $14-million in Rime MWD equipment.
  • Attractive transaction structure: To finance the purchase of Rime, Cathedral has obtained a new $21-million (U.S.) term loan from its lending syndicate while maintaining conservative leverage ratios, and has issued the EP notes with an exchange price of $1.10 per common share, representing an approximately 60-per-cent premium to the closing price of the common shares on the Toronto Stock Exchange on July 10, 2023.
  • Accretive transaction metrics: On an annualized basis, including expected synergies and cost of synergies, Cathedral estimates that the total investment in Rime should pay for itself in two years or less.

Key terms of the transaction

Pursuant to the terms of the definitive agreements between Cathedral and Rime, the transaction closed on July 11, 2023, and Cathedral paid the following consideration to acquire Rime:

  • $21-million (U.S.) in cash;
  • $20-million (U.S.) in EP notes with an exchange price of $1.10 per common share.

The EP notes are subject to the following key terms:

  • Cathedral shall pay interest on a quarterly basis to holders of EP notes at a rate of 5 per cent per annum.
  • On July 11, 2026, if not previously exchanged for common shares, the EP notes expire, and the holders will be entitled to a cash repayment amount equal to the principal amount outstanding of the EP notes.
  • Any time prior to the expiry date, if the 20-day volume-weighted average trading price of Cathedral shares equals or exceeds $1.10 per common share, Cathedral may cause the exchange of the EP notes for up to 24.57 million common shares.
  • Cathedral and the holders of the EP notes may agree to an earlier exchange of the EP notes into common shares.
  • Holders of the EP notes and the underlying common shares, once exchanged, will be subject to restrictions on resale in the following aggregate amounts and until the following dates: 33.0 per cent on a date that is 12 months following the closing date; 33.0 per cent on a date that is 24 months following the closing date; and 34.0 per cent on a date that is 36 months following the closing date.

Select pro forma financial information

Select pro forma financial information is summarized in the attached table in Canadian-dollar terms.


                            Preacquisition   Postacquisition

Common shares outstanding    243.2 million     243.2 million   
Market capitalization (1)   $165.4-million    $165.4-million  
Net debt (2)                 $57.2-million    $115.0-million  
Enterprise value            $222.6-million    $280.4-million  

(1) Based on Cathedral's closing share price on July 10, 
2023, of 68 cents.
(2) Estimated pre/postclosing.

Expanded credit facility

In concert with the transaction, Cathedral has signed an amended credit agreement with ATB Financial as lead arranger and administrative agent and its syndicate of lenders to provide the company with financing by way of a three-year approximately $137-million credit facility (previously $99-million). The credit facility is composed of a $59-million term loan (replacing existing term loan), a new $21-million (U.S.) term loan, a $35-million revolving borrowing base loan and a $15-million revolving operating facility. The credit facility will be utilized to replace and repay Cathedral's existing term loan and borrowing base facilities.


Peters & Co. Ltd. is acting as financial adviser to Cathedral with respect to the transaction.

Acumen Capital Finance Partners Ltd., Stifel FirstEnergy and Cormark Securities Inc. are acting as strategic advisers to Cathedral with respect to the transaction.

DS Lawyers Canada LLP and Fasken Martineau DuMoulin LLP acted as Canadian legal counsel, and Porter Hedges LLP acted as U.S. legal counsel to Cathedral and its subsidiaries.

PPHB LP acted as Rime's financial adviser and investment bank with respect to the acquisition. Meadows, Collier, Reed, Cousins, Crouch & Ungerman LLP acted as legal counsel to Rime and PPHB.

About Cathedral Energy Services Ltd.

Cathedral, based in Calgary, Alta., is incorporated under the Business Corporations Act (Alberta) and operates in the United States under Discovery Downhole Services, a division of Cathedral Energy Services Inc., and Altitude Energy Partners. Cathedral's common shares are publicly traded on the Toronto Stock Exchange under the symbol CET. Cathedral is a trusted partner to North American energy companies requiring high performance directional drilling services. It works in partnership with its customers to tailor its equipment and expertise to meet their specific geographical and technical needs. Its experience, technologies and responsive personnel enable its customers to achieve higher efficiencies and lower project costs.

We seek Safe Harbor.

© 2024 Canjex Publishing Ltd. All rights reserved.