Good afternoon, and welcome to the Kirby Corporation's conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. We ask that you limit your question to one question and one follow-up. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Brian Carey. Please go ahead.
Thank you for joining us this afternoon. With me today are Joe Pyne, Kirby's Chairman, David Grzebinski, Kirby's President and Chief Executive Officer, and Andy Smith, Kirby's Executive Vice President and Chief Financial Officer. Sterling Adlakha is also here and will be available to take investor calls, along with myself, after this call. During this conference call, we may refer to certain non-GAAP or adjusted financial measures.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at www.kirbycorp.com in the Investor Relations section under Financial Highlights. Also on our website is a slide deck that was posted along with the press release today as reference material on Kirby's acquisition of Stewart & Stevenson. We will be referring to it at times during this conference call.
Statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission. On that, I will now turn the call over to Joe.
Thank you, Brian, and good afternoon. This afternoon, we announced that we had entered into an agreement to purchase Stewart & Stevenson for $170 million. The purchase. Excuse me, $710 million. The purchase price will be paid with a combination of Kirby stock and cash. Stewart & Stevenson is a highly respected distribution and service company with 35 domestic locations and seven international locations. They are a distributor and manufacturer for products and services for the oil and gas, marine, construction, power generation, transportation, mining, and agricultural industries. By adding Stewart & Stevenson to Kirby's distribution and service business, we'll expand our capabilities and create a company capable of meeting customer needs in many new areas and locations.
The combined company aligns the service areas of the two businesses very well, given the territorial fit of each of our distribution businesses. It should also help reduce volatility in this segment because Stewart & Stevenson significantly increases the supply and distribution part of the business. Historically, on average, 75% of Stewart & Stevenson's revenue has been derived from the supply and distribution business. We believe the acquisition should nicely clear our return objectives of 12% or more on capital employed through the cycle, will be accretive, and is complementary to other areas of our existing business. We think the timing of this acquisition is excellent, as we appear to be emerging from a significant downturn in the oil service sector and are in the early innings of what could be a prolonged upswing in that industry.
There is a need to rebuild and replace a large portion of the oilfield service companies' fleets. We believe we're well positioned to capitalize on the timing of this. Finally, this acquisition allows Kirby to reach a scale and scope in our distribution and service business that we believe will open new strategic opportunities for this business.
I wanna thank Ambassador Ansary, the executive chairman of Stewart & Stevenson, and the principal in Parman Capital Group, for his efforts to bring our two companies together, and we look forward to working with him as a Kirby shareholder, creating value for other Kirby shareholders. I know this was an important decision for him, and we're honored that he chose us as the right home for his company. Andy and David will give you more details on this transaction and its merits. I now turn the call over to David.
Thank you, Joe. Good afternoon, everyone, and thank you for joining us today. I'll start my comments by providing further detail on the acquisition of Stewart & Stevenson and how it fits within Kirby's existing distribution and services business. I'll then turn the call over to Andy to discuss the financials in greater detail. Then we'll open it up for questions and answers. We included some slides with reference material on the Kirby website. I will refer to some of these slides as I make my comments. Joe covered slide two. Now I'll move to slide three. We think this transaction is simply the best strategic acquisition we could do for our distribution and services business.
The purchase of Stewart & Stevenson will allow Kirby to significantly expand our geographic presence, our customer base, and our distribution territories. At the same time, the acquisition significantly diversifies and expands the addressable markets in our portfolio. The combination with our existing distribution and services business also enhances our operational footprint in the United States to include the Southeast, the Northeast, while strengthening our presence in the Southwest and on the Gulf Coast.
In addition to enhancing our domestic presence, Stewart & Stevenson's capabilities and long-standing relationships with large global customers provide an excellent opportunity for us to expand our international sales. Finally, as many of our customers, particularly the land-based pressure pumpers, appear to be emerging from a prolonged and severe downturn, we think the timing of the acquisition is excellent. Let me give you some additional perspective on the land-based services market today.
Our oil field service customers have come out of the downturn recapitalized, with stronger balance sheets, and are rapidly deploying equipment to the oil field. Anecdotally, we hear frequent customer references to full 2017 calendars, 2018 bookings, and price increases of 20%-25% or higher. In many cases, their equipment is in need of heavy service work to get it back in operable condition, and we are seeing more frequent inquiries for new frac equipment. Barring some change in the macro environment, we expect our manufacturing and ser
vice facilities to operate near full capacity utilization through year-end. We think this macro backdrop, coupled with this acquisition, provides us with strong growth prospects and a unique opportunity to combine businesses and streamline, consolidate, and improve utilization to both better serve our customers and to maximize profitability.
Ultimately, we expect the combined businesses to be less volatile, more efficient, and exposed to more growth and strategic opportunities than they would be on a standalone basis. So I'm going to refer now a bit to slide four in the presentation as I talk about an overview of Stewart & Stevenson's two business sectors. In its distribution business, Stewart & Stevenson has many of the same OEM distributorships and customer relationships as United Holdings.
Yet, because of different territories, there is little customer overlap. We've provided a map of both of our respective locations and distribution territories on slide five. We expect the geographic areas of strength between our two businesses to be almost wholly complementary, which should allow for more responsive customer service and a better overall network for our OEM suppliers.
In its manufacturing business, Stewart & Stevenson currently has four manufacturing facilities capable of manufacturing and refurbishing key oil field equipment. The sector primarily services the oil and gas industry, but includes a wide array of products for both the services and E&P sides of the industry. The products that come from Stewart & Stevenson facilities are highly respected. We had an opportunity to see them in the field, and we anticipate being able to leverage some of Stewart & Stevenson's designs and proprietary controls throughout the combined businesses.
Of Stewart & Stevenson's 31 other domestic facilities, only seven overlap with existing Kirby facilities, including United and Kirby Engine Systems. Due to limited geographic overlap, we expect the cross-selling opportunity could potentially exceed the cost synergies we expect from this transaction. We do anticipate a ramp in our ability to achieve cost synergies over the next year or two. Overall, we think the combined businesses will benefit both our customers and our OEM suppliers, as well as yield new growth and strategic opportunities for Kirby. I'll now turn the call over to Andy.
Thank you, David, and good afternoon. Let me start by giving some additional specifics on the deal and valuation. The purchase is an equity purchase, but there will be a step-up in asset value that enhances the cash tax profile of the deal and improves the cash return. Regarding Stewart & Stevenson's financial performance, it is useful to look at their results over the last six years, which includes two full cycles in the oilfield services sector.
Over that time period, Stewart & Stevenson averaged revenues of $970 million. EBITDA, defined as operating income plus depreciation and amortization, based on audited financials and GAAP accounting, averaged $64 million. Note, this includes certain one-time and non-recurring expense amounts and does not include any potential synergies from the transaction. Once synergies are realized, we believe we are paying between seven and 8x EBITDA.
The cash flow profile of Stewart & Stevenson is attractive and similar to United Holdings in that it requires low capital expenditures relative to our marine businesses, with historical depreciation and amortization of $20 million-$25 million, or around 2%-3% of historical revenue. Depreciation and amortization moving forward will depend on purchase price allocations, specifically the amount of purchase price allocated to amortizable and tangible assets, and is likely to be higher than the historical numbers I just provided. It is difficult to assess the magnitude of accretion to earnings from this acquisition for 2017 due to a variety of factors, including purchase price allocation, timing of closing, final transaction costs, and the time required to achieve synergies.
However, we expect the acquired business, pre-synergies, will perform similarly to its historical average, EBITDA, and we expect to provide an update to our full year guidance in conjunction with our third quarter earnings release, depending upon the timing of the close. We do expect that the acquisition will be more accretive in 2018, as we capture synergies from combining the businesses. We'll provide further earnings per share guidance for 2018 with our normal full year, full year guidance in January of 2018.
The financing of the purchase itself will be split approximately 50/50 between equity and debt. Kirby common stock, valued at approximately $355 million, will be used in the transaction, subject to an adjustment mechanism at closing. The cash portion of approximately $355 million, subject to closing and post-closing adjustments, will be financed using Kirby's existing credit facility. We expect the deal to close in the third quarter of 2017, at which time we will provide final details of the equity debt split of the deal.
Okay. Thank you, Andy. We are excited to add Stewart & Stevenson to the Kirby family, and expect it to provide long-term value for our shareholders, and to solidify our strong market position as a supplier of product, parts, and services in the distribution and services market. With that, we'd like to open up the call for questions and answers. Operator, can you open the line?
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. As a reminder, we ask that you please limit your questions to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jon Chappell with Evercore. Please go ahead.
Thank you. Good evening, guys.
Hey, Jon.
David, you structured the United transaction, six years ago really well, with that whole two-year earn-out, which kind of, helped some of the volatility around the cycle at that time. Is there a similar, type of earn-out structure here, that depends upon the cycle and the profitability, and the ability to achieve synergies? And also, is there any lockups, associated to what's now gonna be your biggest shareholder?
Yeah, short answer, there is no earn-out. The, you know, the price is the price. There's no additional consideration we'll have to pay later, as this performs, so there's no further purchase costs that could come from it, from that respect. There is no lockup either, but it's clear that, you know, the owner, the seller will be a very large shareholder for Kirby.
Okay. And then if I-
But let me add this, Jon. It just—you'll note that there's a large portion of stock used in the transaction, I think, 50% of the consideration. You know, clearly, we would've liked to use less stock, but the seller really wanted the stock, and that was the only way he would do this transaction. So he firmly believes in the value of this combination and the potential that it creates.
Okay, that's important. Thanks, David. For my follow-up, just kind of strategically, I think, you know, if you polled most people, analysts, shareholders, other market observers, they're expecting a big acquisition for you guys at some point this year, but most likely in the barge business. What does this mean, you know, kind of strategically for you as far as your ability to still kind of consolidate the barge business at its trough in the cycle, the firepower that you know, that you still have for that, and also just, you know, the availability, I guess, of good deals in that business today?
Yeah, good, good question. It really doesn't change anything. This takes our debt to total cap, I think, in, I'm looking at Andy, but I think it takes it from 21 to about 25%-26%, debt to total cap. We think we can go up into the mid- to high 40s, which leaves us plenty of dry powder. Andy can quantify that in a second. But I, I would just tell you this, that, that we firmly believe there are acquisitions that will happen in the marine space. We're actively pursuing them. A lot of discussions going on. They're hard to predict, as you know. There's a, there's a lot of pain in the industry right now, as you know. But, you know, bid offer spreads are, are starting to come together.
I would be hard pressed to say that we won't get a transaction done. I think we will in the near future. I'd be shocked if we don't get one or two done by the end of the year. We're pursuing them. We have the debt capacity, and Andy can quantify how much we have here. But we're absolutely looking to consolidate the marine industry more, and we think there are very good possibilities out there.
Yeah, John, just to quantify it, I think we could, we could certainly go with a substantial amount of more debt, probably close to $1 billion of debt, and, and that would be, that would be fine for us, given our track record, how we, how we do acquisitions and how we pay down debt.
All right. Thanks, Andy, and super helpful commentary. Thank you, David.
Thanks, Jon.
Our next question comes from Jack Atkins with Stephens. Please go ahead.
Hey, guys, good afternoon. Thanks for taking my questions. You know, just to start off here, David, going back to Andy's comments around the historical financials, I think, over the last six years. That was very helpful, and appreciate you guys providing that. Could you maybe talk about sort of peak to trough EBITDA performance? Just, you know, just to kind of help us think through the cyclicality of this business, from one point of the cycle to the other.
Yeah, well, as you know, in the last six years, we've had two pretty sharp but short cycles in the energy business and in that side of the business. You know, I think their revenue, and I'm looking at Andy, but it's ranged over the last 10 years from, you know, $1.4 billion, maybe down to $600 million-$700 million. And EBITDA's ranged in that sort of magnitude difference. Andy, you got some better
Yeah, it's been closer to a range of, say, $1.4 million to, you know-
$1.4 billion.
$1.4 billion to a little over $500 million. With EBITDA, that has ranged from, you know, quite honestly, hundred and sixty-type million dollars down to almost break even. So it's sort of, it's been a... It has been somewhat volatile with the fixed cost leverage in the downturn.
That's a gap at the bottom.
Yeah, that's a gap number. That's... I mean, again, this is a private company we're buying that is, you know, will include, you know, non-recurring and one-time items. But the numbers that I'm giving you are just straight operating income plus D&A.
Okay. Gotcha. And then, just sort of a two-part question-
Jack, just to continue.
Yes.
There are a significant amount of synergies, too, that are gonna-
Sure
- occur here. We've kind of quantified the cost saving synergies in the $25 million range. They could go north of that, but there's also gonna be revenue synergies and other synergies that come from it.
Absolutely. Okay, that's very helpful. I appreciate that. And then just for the follow-up, I guess a two-parter here. Andy, you referenced, you know, I think you referenced that there would be a tax benefit here, which may help the cash flow. If you could sort of expand on that for a moment, and just sort of thinking through, you know, the comment around, you know, improving the cyclicality for the combined diesel engine services business, once this is together. Can you maybe just expand on that? You know, given that both of these businesses seem to be pretty volatile, sort of what about the combination will allow it to be sort of less volatile through a cycle, I guess?
Yeah, I'll handle the tax question, and then I'll let David handle the second part. But on the tax side, this is being... It's a stock deal, but essentially it's being treated as an asset deal. The company was structured as an LLC, and so, you know, the full value of that purchase price will ultimately get deducted through our taxes. Now, I can't tell you exactly how. It'll depend on the final purchase price allocation. Some may be deducted as deductible, tax-deductible goodwill. Some may just be through PP&E as we fair value it after we close. But the full, in essence, the full value of this transaction will be a deduction over time.
Okay. Okay, that's helpful.
What was that?
The second part of the question was, you know, how this helps dampen the volatility in the overall?
Oh, yeah, yeah.
Right.
Yeah, sorry.
All right.
Sorry, Jack. Yeah, as you heard in Joe's comments, 75% of this business is in distribution, and that tends to be a lot more stable, a lot more predictable, a lot more ratable. So it should help dampen it. The other thing is, with Stewart & Stevenson, you know, the geographic breadth that we get, it will help. You can see that map. We'll be all over the United States, and then they have some international presence that, quite frankly, is growing and can now also tap different markets. You know, I think their international sales range 10%-20% and encompass many geographies around the world.
So you know, it just brings a diversification of revenue sources and a diversification of types of customers. You know, they do some interesting things, like backup power for data centers, for example, which is something that you know, Kirby's never done, or where very little of, if we have. So there's some diversification benefit that helps bring some additional stability.
Okay. Okay, guys, thanks again for the time.
Yeah.
Our next question comes from Gregory Lewis with Credit Suisse. Please go ahead.
Yes, thank you, and good afternoon, gentlemen.
Hey, Greg.
Hey, Greg.
Yeah, I don't know. I mean, Andy, I'm assuming you and David, you guys are both pretty heavily involved in sort of the due diligence in this. Just as a general question, as we think about, clearly with Stewart & Stevenson, the oil and gas business is a big piece of that business, as is the marine business, which are sort of, you know, comparable to Kirby's existing diesel engine service business. I guess I'd be curious, as you think about on whether it's a revenue basis or an EBITDA or an EBIT basis, what sort of percentages from Stewart & Stevenson is business that is similar to what Kirby currently is doing, and what is outside of what Kirby is currently doing at DES?
Yeah, just, we'll give you some color here. You know, roughly, parts and service is about 60% of what they do. Equipment's 30% over time, and this is activity related, and then rentals would be the balance. So that gives you an example of something we're not in, rentals, really. We rent a very small amount of equipment or generators, but their rental offerings, for example, are much broader and, you know, they rent generators, air compressors, forklifts, rail car movers, suction and submersible pumps, et cetera. So they've got just a bigger, diverse set of business. Also, in the oil field side, you know, they do equipment that we haven't done.
And, you know, seismic vibrators, coiled tubing units, you know, acid pumps, injector heads. Well, we do some hydration, but, you know, drives and switchgear. It's just a broader portfolio and more diverse. You know, I don't know if I'm helping you there, Greg. I can't really give you some more percentages than that, but at this time, at least. But it's a pretty broad set of projects, products, and broader set of customers than we have. There, you know, you know, there is, you know, as we look at, I'm gonna give you one statistic somebody just put here in front of me, that seven of the top 10 customers are non-energy, this last year. So that, that kind of gives you a feel for it.
Okay, great. And then just, just because it's been topical and, and it's something that, you know, you've talked about in the past. You know, as, as we think about the long term over the next three to five years, I know it's been kicked around before about potentially spinning out the diesel engine services business, and I believe Stewart & Stevenson was potentially talked about as a partner in spinning that out. Does the acquisition of this change that sort of medium, long-term strategy?
Yeah, no, I think, you know, our we're excited about the opportunity that S&S brings to Kirby. You know, we're in the business now. We see a lot of strategic opportunities to grow the business, expand the business. Is a spin out a possibility? Yeah, I mean, who can say five years from now, what the various options are? But right now, we're pretty excited about the opportunity set. And the important thing is this gives us critical mass. It's-- I mean, we're now, you know, a significant player in the distribution and services space, and there's many ways we can go, but right now, we're very excited to have this as part of Kirby.
Okay. I say congratulations on the deal. Looking forward to see how it develops.
Thanks, Greg.
The next question comes from Kevin Sterling, Seaport Global Securities. Please go ahead.
Thank you. Good afternoon, gentlemen.
Hey, Kevin.
Yeah. David, longer term, as we think about this business, now that you scaled it, you've got, now you've got distribution combined with manufacturing, are there any other holes that you need to fill? You know, think about that maybe, like, are there any gaps that you may be missing, that you need to fill in this business?
Yeah, yeah, the big, the big opportunity is probably international, you know, expanding that. But I would say, you know, there's always little product lines that you can add or, or you know, equipment suppliers that you could become involved with. We, as you look at the map geographically in the U.S., there are some areas that we can expand and do some more things in.
But, you know, the big opportunity is probably international. Stewart & Stevenson has a fairly good presence internationally, and we think there's some growth opportunities there. But, you know, near term, we've got, we're gonna have to integrate this and look for the leverage points, and the leverage points can be very numerous, and we're excited about those possibilities.
Gotcha. Okay. Is the international, is that more on the distribution side, or is it both distribution and manufacturing?
It's both. There's possibilities to do both.
Okay. Hey, and then on the rental business, is that business, when I hear rental, I generally think short term. Is that business generally less than a year? Is it, you know, a guy's renting this equipment for maybe a month, a few weeks, or is it, you know, I assume most of it's under a year. Maybe you could help me understand that business a little bit more.
Yeah, it's a lot of it's short term, and short nature, probably under a year. But, you know, there can be longer-term stuff as well. Yeah, I think if you think about the oil field, there are cases where they wanna rent some equipment and, you know, they have multiple partners, so sometimes renting is a better way to go because, you know, if they own it, have they ever split it up once they're finished developing what they do? So, there are some longer term stuff, but most of it's pretty short cycle.
Got you. Okay. Well, great. Thanks so much for your time, and best of luck to you.
Thanks, Kevin.
The next question comes from Michael Webber with Wells Fargo. Please go ahead.
Good afternoon, guys. How are you?
Good morning. How are you?
Good. A lot of the stuff has been picked over, but, Andy, I wanted to touch on the guidance around, I guess, really the average EBITDA level for the past six years, and then kind of trying to back that into the seven to 8x EBITDA multiple you guys are kind of talking to for the deal. It looks like that range, you know, when you include the cost synergies.
I t looks like that seven to X- times the EBITDA range would imply kind of nothing to $10 million-$12 million of revenue, kind of cross-selling opportunities. Is that the right way to think about that, I guess, that EBITDA, or that range that you're talking to, or, you know, is maybe that historical average, is that, you know, slanted to in some way that makes that $60 million average probably not the right basis to use?
No, I think that's the right basis. I mean, on the... There's not much in there for cross-selling. You know, we're just kind of looking at that 64 as a way to frame it through the cycle, given that it is a business that has some cyclicality to it. You know, as we said, we kind of think that's a reasonable proxy for what we'll do in the near term, plus what we get on the synergies. And so if you bake all of that in, we think we'll be in that seven to 8x range.
Okay. All right. That's helpful. Just one more just around, you know, the opportunity set, and I think John touched on it in the first question, but, you know, it certainly begs the question, you know, what the opportunity set looks like right now within the inland and the coastal market. And obviously, you guys can't control the timing of those potential deals. Or at least can't control it on your own.
So I guess maybe one way to kind of come at this in terms of the portfolio kind of opportunities you guys are looking at, if we were to kind of assume kind of pro forma financing similar to this deal across kind of that realistic opportunity set in terms of stuff you guys are looking at right now, would you guys be able to pull the trigger on those deals without pushing past that kind of that unofficial debt ceiling you guys kind of put on your your balance sheet there, that kind of that target leverage limit? Is it the right way to think about it, but you guys are basically you can do everything you're looking to do right now at this kind of leverage even following the deal?
Yeah. Yeah, short answer, you know, all the deals we're looking at now are marine-based. As we look at our opportunity set, both inland and offshore, there's really only one that would breach that billion-dollar kind of number that Andy said. And, you know, I would say we're probably talking to half a dozen people right now, and you know, one or two of them may come together. It's, as you know, Michael, it's hard to predict these things, but I think we've got enough dry powder to be able to do what we've got in front of us, potentially for the short term, the next year or two.
As Andy mentioned, we have a good track record of levering up when we get the opportunities and then paying down debt pretty quickly, because we focus on cash flow generation, and then we apply that cash flow to pay down the debt. And that's been key to us keeping our investment-grade rating. But short answer, we see a lot of potential in the marine space, and we could do most everything that we can see on the horizon, except for probably one, maybe two companies at the very large end of the spectrum.
Okay. That's helpful. Thank you, guys, for the time.
Thanks.
Thanks.
Our next question comes from Bill Baldwin with Baldwin Anthony Securities. Please go ahead.
Okay, thank you, and congratulations.
Thank you.
David, can you discuss at all what the management organization could be structured look like? Is it too early to talk about that, or do you have a framework in mind as to how the Kirby diesel and land-based businesses here are gonna be managed now?
Bill, unfortunately, it's just too early to discuss that. We're just... We still have to get in and assess and do some work there, so it's just too early. But look, there's a lot of, as you heard in our synergy number, there's a lot of synergies potential, but in terms of the management team and the structure, it's just too early.
Secondly, can you discuss at all what kind of potential capacity increases you're gonna have in your land-based diesel service businesses for both the manufacturing new equipment and reman, you know-
Sure.
versus what you had today? How much of an-
Yeah.
- overall increase, percentage-wise?
Yeah, it's hard to put a percentage on it. I would tell you, you know, our Oklahoma facility, as you know, Bill, is basically booked out through-
Right
... 2017 with, with remanufacturing and some new, we could maybe push a little more through there. Stewart & Stevenson has four manufacturing facilities, two very large ones. I think, you know, they're still ramping up. I don't think they're as busy as we are. So, you know, a rough order of magnitude is probably it brings two to three times what we currently have in terms of capacity. But I, that's a wild guess. It'd be hard to quantify it more than that at this point.
Yeah, and Bill, let me just add that there are some things that we do know, and that is this is a, this truly is a powerful combination, which, you know, opens a number of opportunities to us, geographic additional capabilities, additional customers. It really, it really makes our existing business a lot more capable and a lot stronger. And the timing is really excellent. I think those are points that I want, I wanna make sure that we focus on. This is a much more capable company today than it was before the combination, and it's at the early innings, we believe, of a recovery where the combined company should do very well.
No, it looks like it's an excellent combination here, Joe. I mean, in terms of the timing and also elevating Kirby, for sure, into the top tier now as a go-to company for parts, service, new equipment, et cetera, et cetera. So, I was just kind of interested in how the-- You know, and I understand it is early, but you know, right now, you know, the management, at least of the old legacy United business, you know, you currently do not have a CEO in place there. And so I was just kind of interested in knowing, you know, how that might work with this new combination. I'm sure you're gonna have some good folks coming out of Stewart & Stevenson. They're gonna be able to, you know, to work in that area.
Yeah. Well, Bill, in our United business, we actually have running the business, Joe Reniers, who looks after both the legacy Kirby Engine Systems and United. We don't call him the president of that or CEO of that business, but he essentially functions as that. But there are clearly some very capable management team members at SNS, and you can expect that we would definitely leverage that capability.
I might add that we have employees at United that are, a number of them are ex-Stewart & Stevenson employees, and United itself was purchased by two ex-Stewart & Stevenson employees. So there's. I mean, the two companies know their businesses well. They know their management teams well. There's a lot of commonality between the two businesses.
No, I think it's a heck of an opportunity for you, you know, for you guys and for your company, and I congratulate you on being able to put this together.
Hey, thank you, Bill. Appreciate that.
The next question comes from Ari Rosa with Bank of America Merrill Lynch. Please go ahead.
Hey, good afternoon, guys. Congratulations on the deal. To start with, just was hoping you could maybe talk about the genesis of this deal, how it came to you. Was it a competitive bidding process, or was it you guys going and seeking this deal to fill a hole in your portfolio or your offerings that you felt maybe needed some bolstering?
Yeah, this is Joe. Let me just respond to that. I think it, you know, came along over really an extended period of time of discussions between us and the executive chairman of Stewart & Stevenson. I think that we knew that these businesses really did belong together, that the combination would create a much stronger company, and that, you know, it just took a while to put it all together. But we're delighted to finally be there and delighted to have Ambassador Ansary as a shareholder. I've very much enjoyed getting to know him over the years and appreciate his skill and wisdom, and we look forward to going forward with a very strong, new combined company.
Okay, fair enough. And then just on the synergy target, the $25 million of cost savings, maybe if you could give a little bit more detail around what are the components there? Is that primarily headcount reduction? Is it facility reduction? What are you seeing there that can really drive that $25 million?
It's a little bit of both. You know, they've basically been structured with sort of a fairly decentralized, both distribution and manufacturing operation, that has a corporate function over the top of it. And really, the majority of that's gonna come out of the corporate function area is mostly, you know, the executive. Some of the executive management team won't stay, and then we'll see some cost reductions in areas associated with, you know, both accounting, IT, HR, all of the above.
Thank you. You still there? Did they cut you off?
Oh, I'm sorry. No, I was sorry about that. I was back on mute. So, but just, just cutting out, like, back office functions gets you to 25, or that's, or is there something, something beyond that? Beyond the headcount, I guess.
No, there's really not. There's nothing there. It's all cost savings, so it's not the total, but I don't want to give you the impression it's the total back office functions. But again, this was a private company that was operated a lot like a private company. So, you know, you do have a level of cost there that can come out that's relatively significant.
Understood. Okay. Thank you for the time.
Our next question comes from David Beard with Coker & Palmer. Please go ahead.
Hey, good morning, gentlemen. Thanks for the time.
Hey, David.
You know, a big picture question, and maybe a little too academic, but, you know, what do you think some of the core competencies that Kirby brings to the table? I was really thinking of just distribution and logistics, but I'd just like to hear your thoughts on that.
Yeah, I think, you know, one of the things Kirby has been very successful in doing, and it's playing out well, is remanufacturing. As you look over the history of Kirby in our marine business, it's, you know, the genesis of that is going out on boats and repairing them on site and repairing the engine equipment and other equipment, rotating equipment, including gears and whatnot, well in the vessel. And it's a very sophisticated mechanic, and it's complicated in terms of remanufacturing and refurbishing and rebuilding engines and whatnot. We took that confidence and applied it to the land-based business.
And, as you've heard, David, over the last, well, I guess about a year now, we've been very busy in growing our remanufacturing business. I think, you know, leveraging that further with S&S will be a powerful thing. They clearly have some strengths in distribution. We have some there as well. And clearly, they've got some other manufacturing capabilities that we don't have.
So when you look at putting them together, it becomes very powerful. And when you think about what could you do strategically, as an owner of our diesel business, what would be the best strategic move you could do as an owner of that business? It would be combining it with Stewart & Stevenson. So we're, as I said, very excited about putting the two businesses together.
So, thanks for that. And then maybe a detailed question for Andy. When you gave the high and low ranges of revenues and EBITDA, would you have a sense of what percent was from oil and gas?
Well, I mean, as you look at the business, certainly in the trough periods, it's gonna be a much lower period from oil and gas, and in the peak, it's gonna be much higher. I mean, that's kind of the lever that they've got. The distribution business does serve a lot of industrial customers, but sort of the peak years are gonna be the heavier oil and gas years. I can't give you an exact percentage, David. I apologize.
No, no, that's okay. Gentlemen, appreciate the time, and look forward to seeing the acquisition unfold.
Okay.
Hey, thanks, David.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Brian Carey for any closing remarks.
Thank you, everyone, for your interest in Kirby Corporation and for participating in the call. If you have any additional questions or comments, you can reach me directly at 713-435-1413. Due to the size, significance, and timing of this transaction, Sterling Adlakha will also be assisting with the investor relations effort. He can be reached at 713-435-1101. Thank you, and have a great evening.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.