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Enerflex: Case Analysis

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Strategic Reasoning for the Acquisition The AXIP acquisition is a strategic move for Enerflex. Currently, the Engineered Systems product line generates the majority of Enerflex’s revenue. Unfortunately, the product line has cyclical revenue stream. During economic downturns, there is a steep decline in revenue; vice versa, during a bullish economy, Enerflex has strong revenue earnings. Enerflex is interested in acquiring AXIP, because AXIP generates stable revenue through their compression product line. By acquiring AXIP, Enerflex will be able to stabilize their cyclical revenue stream. Enerflex’s Current Valuation – Industry Comparable Currently, the Enerflex share price is slightly overvalued. Currently, Enerflex stock price is $16.33 (at close on January 4, 2014), and the average industry comparable stock price is $14.39. The Enerflex stock is slightly overvalued by 11.9%. …show more content…

The DCF analysis calculates an EV of USD$557.8 million in the base scenario and EV of USD$635.9 in the cross selling scenario. The industry comparable valuation calculates an average EV of $534 million, which is discounted for MLP premium, advisor cost, and international risk factor. Both valuation methods provide EVs within range of each other. Acquisition Funds We recommend offering $534 million as an initial base offer, and $557.8 million as a maximum offer. Negotiating within the stated offer range, will increase Enerflex’s EV by $78.1million through cross selling synergies. In order to persuade AXIP management to join Enerflex, stock options might need to be issued. Furthermore, AXIP management has local operational experience, which will minimize the local operational risks. Enerflex is based out of Calgary and may not be familiar with the culture and business practices in the South America

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Their current ratio is 1.4% (total current assets/total current liabilities). According to the Risk Management Association of Financial Ratio Benchmarks, the current average ratio is 1.5%. In 2014, the current ratio for the firm was 1.46% while the average ratio in the industry (NAICS 311330) was 1.6%. The company’s net property and equipment in 2015 is worth 2.6 million dollars, a slight increase from 2014, which was 2.3 million. The company is considering taking on some debt to increase their production capabilities.

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Opportunities • Highly scalable model that gives the opportunity to grow across different countries. • Large market that is continuously growing. • Potential increase in-market and out-of-market M&A. • Venture capital available.

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