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SSG Advises Diverse Energy Systems, ITS on Multiple Transactions

March 04, 2016, 07:46 AM
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SSG Capital Advisors, LLC ("SSG") acted as the co-investment banker to Diverse Energy Systems, LLC and its subsidiary ITS Engineered Systems, Inc. (collectively "Diverse" or the "Company") in both the placement of debtor-in-possession ("DIP") financing from Coyote Capital Management, LLC and the sale of substantially all of their assets to Cimarron Energy, Inc. ("Cimarron"), a portfolio company of Turnbridge Capital, LLC ("Turnbridge").  The sale was effectuated through a Chapter 11 Section 363 process in the U.S. Bankruptcy Court for the Southern District of Texas.  The transactions closed in October 2015 and January 2016, respectively.
Diverse manufactures new oil and gas field service equipment to be sold on a single unit basis or as a group.  The Company also manufactures certain types of equipment to be used in its rental fleet.  All equipment is configured to appropriately accommodate the characteristics of the specific application it will service.  Additionally, Diverse offers support and maintenance services to its customers for both leased and owned equipment.
In order to build an infrastructure capable of supporting revenue growth, the Company made significant investments in SG&A and its facilities during 2012 through 2014.  As the price of oil plummeted, Diverse faced declining sales and an inflated cost structure, and was forced to right-size the business.  Despite the Company's cost-saving efforts, the continued decline in performance through the third quarter of 2015 placed additional strain on its liquidity.  In September 2015, Diverse Energy Systems, LLC filed for Chapter 11 bankruptcy protection to avoid further deterioration of its business and to retain the value of its assets.  ITS Engineered Systems, Inc. had previously filed for Chapter 11 in April 2015.
SSG was retained by Diverse in May 2015 to evaluate strategic alternatives.  In addition to contacting a number of potential lenders to attempt to refinance its debt, SSG also conducted a comprehensive marketing process to financial buyers to determine if there was an interest in creating a partnership.  While multiple parties engaged in a thorough review of the business and submitted offers, it was determined that filing for Chapter 11 bankruptcy protection and beginning a sale process was the best option.  SSG contacted lenders to evaluate interest in providing a DIP facility.  While several parties submitted financing term sheets, the term sheet from Coyote Capital Management was determined to be the best offer.  The financing transaction closed in October 2015.
In addition to assisting the Company in obtaining DIP financing, Diverse and its advisors concluded that the best option was to proceed with a sale effectuated through a Chapter 11 Section 363 process.  SSG conducted a comprehensive marketing process to a wide universe of strategic and financial buyers to structure the optimal solution for the Company.  Several parties engaged in a thorough review of the business. The offer from Cimarron was determined to be the highest and best offer and the sale transaction closed in January 2016.
Cimarron is a leading manufacturer of engineered production, process, and environmental equipment for the upstream and midstream energy sectors.  Turnbridge is a private equity firm that invests in middle-market businesses that are directly or indirectly dependent upon energy and energy-related infrastructure spending.
Other professionals who worked on the transactions include:

  • Jay H. Krasoff of Chiron Financial Group, Inc., co-investment banker to Diverse Energy Systems, LLC and ITS Engineered Systems, Inc.;
  • J. Robert Forshey and Clarke Rodgers of Forshey Prostok, LLP, counsel to Diverse Energy Systems, LLC;
  • John P. Boylan of EJC Ventures, LLC, Chief Restructuring Officer to Diverse Energy Systems, LLC;
  • Micheal W. Bishop and Lydia R. Webb of Gray Reed & McGraw, P.C., counsel to ITS Engineered Systems, Inc.;
  • Cary M. Grossman of Shoreline Capital Advisors, Chief Restructuring Officer to ITS Engineered Systems, Inc.;
  • Thomas G. Wallrich and Joel D. Nesset of Cozen O'Connor P.C., counsel to Alerus Financial Corporation;
  • Jim Schober of Schober & Schober, PC and Kathryn Smyser of Selman, Munson and Lerner, P.C., counsel to Coyote Capital Management;
  • Denny Meyer of Fields, Nemec & Co., P.C., financial advisor to Coyote Capital Management;
  • Michael P. Considine, Dan B. Prieto and Melissa D. Kalka of Jones Day, counsel to Turnbridge Capital;
  • Marc W. Taubenfield of McGuire, Craddock & Strother, P.C., counsel to Grand Bank of Texas;
  • Joseph G. Epstein and Sean B. Davis of Winstead PC, counsel to Fountain Partners;
  • Kenneth L. Baum and Michael D. Warner of Cole Schotz P.C., counsel to Nations Equipment Financing;
  • Edward L. Rothberg and T. Josh Judd of Hoover Slovacek, LLP, counsel to Icon Bank of Texas;
  • Eric M. Van Horn, Amber M. Chambers and Nicholas Zugaro of McCathern PLLC, counsel to Spunky Flat Land Company; and
  • H. Miles Cohn of Crain, Caton & James, PC, counsel to the Official Committee of Unsecured Creditors.

SSG contacts on this deal:

  • Mark E. Chesen, Managing Director
  • Matthew P. Karlson, Managing Director
  • Matthew Arden, Associate
  • Brett E. Kravitt, Analyst

SSG Capital Advisors is an independent boutique investment bank that assists middle-market companies and their stakeholders in completing special situation transactions. We provide our clients with comprehensive investment banking services in the areas of mergers and acquisitions, private placements, financial restructurings, valuations, litigation and strategic advisory. SSG has a proven track record of closing over 300 transactions in North America and Europe and is a leader in the industry.

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