Kodiak Gas Services (NYSE:KGS) outlined plans to expand into distributed power generation following its announced agreement to acquire Distributed Power Solutions (DPS). On a conference call discussing the transaction, executives said the deal is intended to broaden Kodiak’s customer offering beyond contract compression and position the company for what it described as accelerating demand for behind-the-meter power solutions, particularly from data centers.
Transaction overview and strategic rationale
President and CEO Mickey McKee said Kodiak has agreed to acquire DPS for $675 million, adding that the transaction positions the company to offer power generation solutions to customers. CFO John Griggs said the total cost of the transaction, including estimated fees and expenses, is approximately $690 million. Griggs also said the valuation equates to about 7.4x DPS’s expected 2026 adjusted EBITDA on a full-year basis.
DPS fleet, customer mix, and operating profile
Management said the deal adds a “state-of-the-art” fleet of 384 MW of distributed power equipment, including both turbines and reciprocating engines, which Kodiak said provides flexibility across multiple applications and end markets. McKee highlighted long lead times for new power generation equipment—some stretching “well into 2028”—as part of the rationale for acquiring an existing fleet with customers and contracts.
Kodiak emphasized equipment commonality and supplier alignment, noting DPS’s fleet is 100% powered by Caterpillar engines and turbines. McKee said Kodiak has more than 700 technicians certified to work on Caterpillar engines and expects to apply its operating practices and customer service model to the power business.
On customer exposure, management said approximately two-thirds of DPS’s active fleet is currently contracted to data centers. McKee cited a multi-year agreement supplying primary power to a large data center operator in Virginia that has been in place for over a year and is running at 99.9% reliability. He also said DPS has a growing pipeline of additional data center opportunities and is active in behind-the-meter microgrid projects.
McKee additionally pointed to safety alignment, stating DPS has had a 0.0 TRIR since inception.
Market backdrop: data center-driven demand and behind-the-meter shift
Chief Commercial Officer Steven Green said the U.S. power market is at an “inflection point,” with demand growth expected to accelerate over the next decade. Green stated that electricity demand for data centers is expected to double by 2035 and account for over 50% of U.S. power demand growth over that period.
Green said grid interconnection delays are pushing large power consumers toward on-site generation. He cited estimated wait times of over six years to connect to the grid in PJM and “closer to eight years” in New Mexico, adding that regulatory and political pushback for large loads is contributing to the trend. Based on third-party research cited on the call, Green said more than 40% of data centers expected to be online by 2035 are not expected to connect to the grid and instead supply their own power, implying a need for more than 60 GW of behind-the-meter solutions.
Executives also discussed contract structure in the sector. McKee said industrial and microgrid applications often fall into one- to two-year contract timelines, while data center work is shifting toward five- to seven-year contracts, with discussions in some cases extending to 10 to 15 years. Management said it expects the ability to sign longer-term data center contracts could increase Kodiak’s overall contract duration and further support stable earnings.
Financing plan, closing timing, and capital allocation commentary
Griggs said Kodiak plans to finance the acquisition using:
- ~$590 million drawn from its existing ABL facility
- $100 million of stock issued to the sellers, equal to about 2.4 million shares and “just under 3% ownership” post-close
Griggs said closing is subject to customary conditions, including HSR, and that because the businesses do not overlap, Kodiak does not anticipate issues, suggesting a closing “most likely early in the second quarter, if not sooner.” He said the company expects to provide full guidance for the power segment at that time.
On capital allocation, executives said Kodiak’s view of its compression business remains unchanged. McKee said demand in compression is “as much or more” than the company has ever seen and that Kodiak plans to maintain a disciplined capital approach. He also said Kodiak has “fully sold out” its compression in 2026 and has begun taking orders for 2027 and into 2028, citing expectations for additional Permian gas takeaway and further Gulf Coast LNG export capacity expansion supporting demand.
In the Q&A, management said it was not ready to quantify operational synergies, characterizing them as not expected to be “huge” given DPS is a small private company, while emphasizing organic growth as the primary attraction. McKee discussed potential efficiency from sharing Caterpillar-qualified technicians and parts inventory, especially where DPS equipment is already located in the Permian. He also indicated that reciprocating engines may be more available for near-term megawatt additions in 2026 and early 2027, with a shift toward turbines over time as larger infrastructure-type data center deals develop and as supply chains extend into 2028 and 2029.
Griggs said Kodiak expects to “honor the balance sheet” and suggested future growth financing could involve a “more creative” mix, including partnerships, financing opportunities, or additional debt market activity. On shareholder returns, Griggs said the company does not currently see a change in its dividend model of paying a healthy percentage of discretionary cash flow, while noting that returns on organic investment in power and compression could outweigh share repurchases going forward.
About Kodiak Gas Services (NYSE:KGS)
Kodiak Gas Services, Inc operates contract compression infrastructure for customers in the oil and gas industry in the United States. It operates in two segments, Compression Operations and Other Services. The Compression Operations segment operates company-owned and customer-owned compression infrastructure to enable the production, gathering, and transportation of natural gas and oil. The Other Services segment provides a range of contract services, including station construction, maintenance and overhaul, and other ancillary time and material-based offerings.
