Company Announcements

CALGARY, Alberta--(BUSINESS WIRE)--Nov. 4, 2024-- STEP Energy Services Ltd. (“STEP” or the “Company”) (TSX: STEP) is pleased to announce that it has entered into a definitive arrangement agreement (the “Arrangement Agreement”) with 2659160 Alberta Ltd. and the limited partnerships comprising ARC Energy Fund 8 (a private equity fund advised by ARC Financial Corp.) (collectively, “ARC”) to take the Company private in an all-cash transaction.

Under the terms of the Arrangement Agreement, ARC will acquire all of the issued and outstanding common shares of STEP (the "Shares") that ARC (and ARC Energy Fund 6) does not currently own or control or direct, directly or indirectly, (the “Minority Shares”) for cash consideration of $5.00 per Share by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Alberta) (the "Act").

The Arrangement, which has been unanimously approved by STEP’s board of directors (the “Board”) entitled to vote thereon, will be subject to shareholder approval, including the approval of the holders of the Minority Shares (the “Minority Shareholders”), court approval, and customary closing conditions. The Arrangement is expected to close in December 2024.

Steve Glanville, President and CEO of STEP, commented, “As one of the founding members of STEP, I have seen the Company develop into one of the best-in-class energy services companies in North America. We have successfully navigated the organization from our initial start-up days to the IPO in 2017 and through numerous industry cycles. We have remained committed to our clients, communities, and our dedicated employees, who we call professionals. We are tremendously proud of the company we have built. STEP has consistently explored avenues to maximize value for our shareholders, which has led to the proposed transaction. We believe this is in the best interests of STEP. We would like to thank STEP shareholders for their support over the years.”

Highlights Of the Arrangement

• Significant Premium
  • The purchase price represents a premium of approximately 40% to STEP’s November 1, 2024 closing price on the TSX.
• All Cash Consideration
  • The purchase price payable to Minority Shareholders upon closing of the Arrangement will be paid in cash.
• Independent Valuation
  • In connection with the Arrangement, STEP obtained a formal valuation of the Shares as at October 31, 2024 from Ernst & Young LLP (“EY”), an independent valuator. The purchase price is in the upper third of the fair market value range of $4.40 to $5.30 per Share, as determined by EY.
• Unanimous Board Approval
  • The members of the Board entitled to vote on the Arrangement unanimously support the Arrangement, and recommend that the Minority Shareholders vote in favour of the Arrangement resolution at the special meeting of holders of Shares to be called and held to approve the Arrangement (the "STEP Meeting").
• No financing condition
  • The Arrangement is not conditional on ARC obtaining financing.

Special Committee and Board Recommendation

The Board formed a special committee of independent directors (the “Special Committee”) to consider an initial proposal from ARC to acquire all of the Shares held by Minority Shareholders, as well other alternatives available to STEP, and, if deemed advisable, to negotiate with ARC a proposed transaction for ARC to acquire all of the Minority Shares. Following a comprehensive review of the ARC proposal, the receipt of the formal valuation from EY as to the fair market value of the Shares, the receipt of advice from its financial and legal advisors, negotiations between the Special Committee and ARC as to the purchase price per Share and other terms of the Arrangement, and the receipt of a fairness opinion from EY in respect of the fairness, from a financial point of view, of the consideration to be received by the Minority Shareholders under the Arrangement, the Special Committee unanimously determined that the Arrangement is in the best interests of STEP and recommended that the Board approve the execution and delivery of the Arrangement Agreement and recommend that Minority Shareholders vote in favour of the Arrangement.

After considering, among other things, the unanimous recommendation of the Special Committee and the receipt of advice from its legal advisors, the Board (with Mr. Jeremy Gackle, a representative of ARC, abstaining) unanimously determined that the Arrangement is in the best interests of STEP and is fair to the Minority Shareholders, approved the execution and delivery of the Arrangement Agreement, and recommends that the Minority Shareholders vote in favour of the Arrangement resolution at the STEP Meeting.

Opinion and Formal Valuation

In connection with its review of the Arrangement, the Special Committee retained EY as its independent valuator and requested that EY prepare a formal valuation of the Shares in accordance with Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"). In addition to its formal valuation of the Shares, EY has also delivered a fairness opinion as of October 31, 2024, stating that, subject to the assumptions, limitations and qualifications set forth in EY’s written fairness opinion, the consideration to be received by the Minority Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Minority Shareholders.

Arrangement Details

The Arrangement is subject to customary TSX and court approvals and the following approvals at the STEP Meeting: (a) the approval of at least 66 2/3% of the votes cast by holders of the Shares (the "Shareholders"); and (b) the approval of at least a majority of the votes cast by Shareholders, excluding votes of ARC (and ARC Energy Fund 6) and any other holders of Shares whose votes are required to be excluded for the purposes of such vote under MI 61-101. For the purposes of this "majority of the minority" approval requirement under MI 61-101, 40,243,000 Shares controlled, directly or indirectly, by ARC and ARC Energy Fund 6 will be excluded from voting.

The STEP Meeting is expected to be held on December 19, 2024. Additional information regarding the Arrangement and how Voting Securityholders can participate in and vote at the STEP Meeting will be provided in a STEP information circular (the “Circular”), which is expected to be mailed to Shareholders on or about November 27, 2024. EY's formal valuation report and fairness opinion will be included in the Circular. EY believes that its report and opinion must be read in their entirety to understand the valuation process and valuation results and fairness opinion.

All members of the Board and STEP’s officers, who collectively own directly or indirectly or exercise control or direction over approximately 1.27% of the outstanding Shares, and ARC Energy Fund 6, which exercises control or direction over approximately 18.93% of the outstanding Shares, have entered into support agreements pursuant to which they have agreed, subject to the provisions thereof, to vote in favour of the resolution approving the Arrangement at the STEP Meeting.

The Arrangement Agreement contains customary provisions, including a non-solicitation covenant on the part of STEP, subject to the fiduciary duties of the Board in the event an unsolicited superior proposal is received by STEP.

Closing of the Arrangement is expected to occur on or about December 23, 2024, following the STEP Meeting and upon satisfaction of all conditions precedent, including receipt of the final order of the Court of King’s Bench of Alberta.

Following completion of the Arrangement, it is expected that the Shares will be delisted from trading on the TSX and an application will be made for STEP to cease to be a reporting issuer. STEP will continue to be run by its current management team, led by Mr. Steve Glanville.

A copy of the Arrangement Agreement will be available for viewing under STEP’s SEDAR+ profile at www.sedarplus.ca. Additional information about the Arrangement will be contained in the Circular, which will be mailed to shareholders and available for viewing under STEP’s SEDAR+ profile at www.sedarplus.ca. All Minority Shareholders are urged to read the Circular once available as it will contain additional important information concerning the Arrangement.

ARC Early Warning Disclosure

ARC Energy Fund 8 currently has control or direction over, directly or indirectly, 26,654,454 Shares, representing approximately 37.14% of the currently issued and outstanding Shares. ARC Energy Fund 8 and ARC Energy Fund 6 collectively exercise control or direction over 40,243,000 Shares, representing approximately 56.07% of the currently issued and outstanding Shares. Assuming completion of the Arrangement, ARC (collectively with ARC Energy Fund 6) will own or have control or direction, over, directly or indirectly, 100% of the Shares. Assuming completion of the Arrangement, ARC intends to cause the Shares to be delisted from the TSX and to cause STEP to apply to cease to be a reporting issuer under applicable Canadian securities laws, and to otherwise terminate STEP’s public reporting requirements.

ARC has its head office located in Calgary at Suite 4300, 400-3 Ave SW, Calgary, AB T2P 4H2. A copy of the relevant early warning report will be filed under the Company’s profile on SEDAR+ at www.sedarplus.ca. To obtain a copy of the early warning report, please contact ARC, at 4300, 400-3 Ave SW, Calgary, AB T2P 4H2, Attention: Chris Anderson, Email: canderson@arcfinancial.com, Phone: 403.292.0392.

Advisors and Counsel

Peters & Co. Limited is acting as financial advisor to the Special Committee. EY provided an independent valuation pursuant to MI 61-101 and fairness opinion to the Special Committee. Burnet, Duckworth & Palmer LLP is acting as legal advisor to the Special Committee.

Stikeman Elliot LLP is acting as legal advisor to STEP.

RBC Capital Markets is acting as lead financial advisor and ATB Capital Markets is acting as co-financial advisor to ARC. Norton Rose Fulbright Canada LLP is acting as legal advisor to ARC.

ATB Financial and Royal Bank of Canada are acting as co-lead arrangers and sole lenders (the “Co-Leads”) for a senior credit facility. Dentons Canada LLP is acting as legal counsel to the Co-Leads.

Forward Looking Statements

This news release contains “forward-looking information” or “forward-looking statements” within the meaning of applicable securities laws (collectively, “forward-looking statements”). In some cases, forward-looking statements are identifiable by the terminology used, such as “will”, “expect”, “believe”, “estimate”, “should”, “anticipate”, “potential”, “opportunity”, or other similar wording. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements in this news release, include, among other things, references, expressed or implied, to: STEP’s business in general statements relating to the anticipated benefits of the Arrangement; the ability to complete the Arrangement contemplated by the Arrangement Agreement and the timing thereof, including the parties ability to satisfy the conditions to consummation of the Arrangement; the receipt of the approval of holders of Shares; anticipated timing of mailing of the Circular and holding of the STEP Meeting; Court approvals, and other customary closing conditions; the possibility of any termination of the Arrangement Agreement in accordance with its terms; the expected benefits to STEP and its shareholders of the proposed Arrangement; payment of the cash consideration; the anticipated date of closing of the Arrangement; delisting of the Shares and changes to reporting issuer status; statements relating to the source of funds for payment by ARC.

Forward-looking statements are subject to known and unknown risks and uncertainties and other factors, some beyond the control of STEP, which could cause actual events, results, expectations, achievements or performance to differ materially. The risks and uncertainties related to the Arrangement contemplated by the Arrangement Agreement include, but are not limited to: the possibility that the Arrangement will not be completed on the terms and conditions, or on the timing, currently contemplated, and that it may not be completed at all: failure to obtain or satisfy, in a timely manner or otherwise, required shareholder and court approvals and other conditions to the closing of the Arrangement; the risk that competing offers or acquisition proposals will be made; the negative impact that the failure to complete the Arrangement for any reason could have on the price of the Shares or on the business of the Company; the failure of ARC to satisfy the closing conditions thereunder in a timely manner or at all; ARC’s failure to pay the cash consideration at closing of the Arrangement; the absence of a reverse break fee in favour of the Company; the business of STEP may experience significant disruptions, including loss of clients or employees due to Arrangement related uncertainty, industry conditions or other factors; risks relating to employee retention; the risk of regulatory changes that may materially impact the business or the operations of STEP; the risk that legal proceedings may be instituted against STEP; risks related to the diversion of management’s attention from STEP’s ongoing business operations while the Arrangement is pending; and other risks and uncertainties affecting STEP, including those described in the Company’s annual information form for the year ended December 31, 2023, as well as other filings and reports STEP may make from time to time with the Canadian securities authorities. The foregoing list of risks and uncertainties is not exhaustive.

In addition, forward-looking statements are based upon, among other things, factors, expectations and assumptions that STEP has made as at the date of this news release regarding, among other things: the satisfaction of the conditions to closing of the Arrangement in a timely manner, including the receipt of all necessary approvals; ARC’s ability to pay the cash consideration at closing of the Arrangement; the timing of receipt of Court and shareholder approvals; and assumptions regarding past and future business strategies, local and global economic conditions, and the environment in which the Company operates.

Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. No forward-looking statement is a guarantee of future results. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of the date made. The forward-looking statements contained in this news release represents the Company’s expectations as of the date of this news release (or as the date they are otherwise stated to be made) and are subject to change after such date. However, the Company disclaims any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada. All of the forward-looking information contained in this news release is expressly qualified by the foregoing cautionary statements.

ABOUT STEP

STEP Energy Services Ltd. is an oilfield service company founded in 2011 that provides coiled tubing, fluid and nitrogen pumping and hydraulic fracturing solutions. The Company’s combination of modern, fit-for-purpose fracturing and coiled tubing equipment has differentiated STEP in plays where wells are deeper, have longer laterals, and higher pressure. For more information about STEP, visit: https://www.stepenergyservices.com/

Initially operating only in Canada as a specialized, deep-capacity coiled tubing company, STEP expanded into the U.S. in 2015 and began offering fracturing services to its Canadian clients. Currently, STEP’s Canadian completion and stimulation services are focused in the Western Canadian Sedimentary Basin (WCSB). In the U.S., our fracturing services are concentrated in the Permian basin, and our coiled tubing services extend to the Permian and Eagle Ford in Texas, the Uinta-Piceance and Niobrara-DJ basins in Colorado, and the Bakken in North Dakota.

STEP’s consistent track record of safety, efficiency, and execution drives repeat business from our blue-chip exploration and production clients.

ABOUT ARC FINANCIAL

Founded in 1989, ARC is committed to building high-performing businesses that address the world's energy and sustainability needs. ARC provides growth capital to companies across the energy spectrum with high quality management teams. To date, ARC has raised over CAD $6.3 billion across eleven energy focused private equity funds and invested in more than 180 companies. For more information, visit www.arcfinancial.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241104136642/en/

For more information please contact:
Steve Glanville
President & Chief Executive Officer
Telephone: (403) 457-1772
Web: stepenergyservices.com

Source: STEP Energy Services Ltd.