U.S. Silica Holdings Inc. (NYSE: SLCA) is continuing to live up to its talk of M&A with two deals announced since mid-July totaling about $428.3 million.
On Aug. 2, U.S. Silica said it has an agreement to acquire Sandbox Enterprises LLC for $218.3 million. Sandbox is a logistics service company involved in the transport of proppant used in hydraulic fracturing. U.S. Silica described it as the leading alternative to current pneumatic sand transportation.
Previously, U.S. Silica said it would pay $210 million for New Birmingham Inc.’s NBR Sand Unit.
“Both NBR sand and Sandbox will add substantial value for both our customers and investors,” said Bryan Shinn, U.S. Silica president and CEO.
U.S. Silica has been bent on making acquisitions in the downturn, especially as companies continue to pack more sand into fracking jobs. Proppant demand per well has increased more than 70% during the last few years, the company said.
The Sandbox acquisition adds the “last mile” of delivery to U.S. Silica’s supply lines—enabling it to essentially remove sand from a mine, move it to a well site and put it back in the ground.
In May, the company also completed the purchase of a fully permitted, 327-acre parcel of land adjacent to its silica sand mine and plant in Ottawa, Ill. The purchase price was undisclosed.
Shinn said the Sandbox acquisition will give its customers significantly improved transportation and operating efficiency that will translate into less expensive deliveries of proppant. Proppant costs made up an average of 14% of total completion costs, according to a March report by the Energy Information Administration.
“Sandbox's proprietary delivery solution is critical to addressing the growing logistical challenges our customers face as E&P operators continue to increase the amount of proppant they use per well,” Shinn said.
Sandbox’s management will remain in place, Shinn said. He said customers were overwhelming positive about Sandbox’s services.
One customer told him, “It’s bulletproof. It’s idiot-proof. It’s great,” Shinn said during an Aug. 3 conference call.
Marc Bianchi, an analyst for Cowen & Co., said the two deals are expected to be accretive to earnings per share (EPS) by up to 60 cents in 2017. U.S. Silica said the Sandbox acquisition alone would generate EPS accretion of up to 30 cents in 2017.
“Regional sand producer NBR sand is a straightforward addition to SLCA's existing business platform,” Bianchi said. “The second transaction, Sandbox Logistics, extends the company's reach into the supply chain going all the way to the well site. With both acquisitions significantly more profitable than SLCA's existing business, we see immediate accretion.”
“We continue to view frack sand having the most attractive fundamentals and greatest potential for upward earnings revisions,” he added.
Shinn said that U.S. Silica will continue to examine additional M&A opportunities, but will not lose sight of its overall plan.
“We’re going to remain keenly focused on the three areas we’ve been focused on in ’15 and ‘16 and that’s cash, customers and consolidation,” he said.
Sandbox utilizes patented equipment and processes to service wellsite operations. The company provides field personnel for installation, training and operation as required.
Sandbox’s system includes:
- Steel, weatherproof Sandbox containers--these can hold 22.5 tons of sand and are gravity-fed to reduce silica dust. Easily stacked to reduce footprint, the containers also serve as mobile transloading points;
- Specially designed truck chassis--provide efficient delivery and represent a 60% lower investment than pneumatic equipment. Each chassis holds one full or two empty Sandbox containers, allowing efficient transportation of mass quantities of sand; and
- Customized conveyor cradles--these deliver proppant directly into the blender hopper. Each conveyor can hold four Sandbox containers. A conveyor cradle can deliver throughput of 25,000 pounds per minute.
Morgan Stanley & Co. LLC acted as exclusive financial adviser to U.S. Silica. Piper Jaffray & Co., through its Simmons & Co. International division, acted as exclusive financial adviser to Sandbox Enterprises LLC.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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