Diversified Energy to acquire Canvas Energy for $550 million

Diversified Energy Company PLC (DEC) announced the acquisition of Canvas Energy for approximately $550 million, significantly expanding its Oklahoma operating area. This strategic move is projected to increase DEC's production by 13% (147 MMcfepd) and contribute $155 million in next-twelve-months EBITDA with 70% margins, representing a 3.5x NTM EBITDA multiple. The transaction is expected to boost DEC's adjusted EBITDA by 18% and free cash flow by 29%, funded through new shares, a $400 million Carlyle-originated asset-backed securitization, and existing liquidity, with closing anticipated in Q4 2025.

Analysis

Diversified Energy Company (DEC) is executing a significant expansion in its Oklahoma operations through the acquisition of Canvas Energy for approximately $550 million. The transaction is financially accretive, projected to increase DEC's production by 13% (147 MMcfepd) and boost adjusted EBITDA by 18% and free cash flow by approximately 29%. The assets are being acquired at an attractive valuation of approximately 3.5 times next-twelve-months EBITDA, with the acquired properties expected to generate $155 million in NTM EBITDA at high margins of around 70%. The deal's funding structure is a hybrid model, utilizing roughly 3.4 million new shares issued to the seller, a substantial asset-backed securitization of up to $400 million originated by Carlyle, and existing cash reserves. Strategically, the acquisition enhances scale and provides synergy opportunities within DEC's core Central Oklahoma footprint, adding approximately 1.6 million net acres. The transaction is designated as "significant" under UK Listing Rules and is slated for completion in the fourth quarter of 2025.

Key Decisions for Investors

• Given the acquisition's projected 18% increase to adjusted EBITDA and 29% increase to free cash flow at an attractive 3.5x NTM EBITDA multiple, investors should view this as a strongly accretive transaction that could drive shareholder value upon closing.
• It is crucial to monitor the execution of the $400 million asset-backed securitization and the integration process, as the long closing timeline to Q4 2025 introduces market and execution risks that could alter the deal's favorable economics.
• Investors should re-evaluate their models for DEC to account for the enhanced scale and potential for margin-enhancing synergies in its core Oklahoma operating area, which could lead to a rerating of the company's long-term cash flow profile.