U.S. Silica Holdings Inc. (NYSE: SLCA) boosted its industrial and specialty products (ISP) segment with the acquisition of EP Minerals for $750 million cash, the Frederick, Md.-based company said March 23.
The acquisition follows a recent $75 million sale by U.S. Silica of transload assets located in the Permian, Eagle Ford and Appalachian basins to CIG Logistics, which is expected to close by the end of March.
EP Minerals, based in Reno, Nev., is a global producer of engineered materials derived from industrial minerals including diatomaceous earth, clay and perlite with sales of more than $200 million. The company's facilities are located in Nevada, Oregon, Nebraska, Tennessee, Alabama and Mississippi.
"EP Minerals checks all of the boxes in terms of what we've been looking for in an attractive, adjacent business to our ISP segment," Bryan Shinn, president and CEO of U.S. Silica, said in a statement. "It is a rare find with an attractive market structure and has industry-leading margins with exciting opportunities to grow sales. It has strong IP protection and leverages our core competencies as a premier surface mining and logistics company. EP Minerals' reliable cash flow also complements our oil and gas segment while providing a robust platform for expansion and growth through organic opportunities and strategic bolt-on acquisitions."
Mike Kelly, a senior analyst with Seaport Global Securities, said U.S. Silica's acquisition of EP Minerals makes sense on multiple levels as well as enhances the long-term outlook for U.S. Silica.
"The increased exposure to the industrial market should reduce earnings volatility and will ultimately be rewarded with an enhanced valuation multiple for the combined entity, in our opinion. We believe the more diverse revenue streams from the industrial segment and predictable cash flow generation will also increase financial flexibility to reduce leverage, make strategic investments, and opportunistically return cash to shareholders," Kelly said in a March 26 note.
U.S. Silica said it will finance the EP Minerals transaction and refinance its current debt through a new seven-year, $1.280 billion committed term loan B credit facility and an expanded $100 million revolving credit facility.
EP Minerals’ management team, led by President and CEO Gregg Jones, will continue to lead EP Minerals after the closing of the transaction.
U.S. Silica said it expects to close its acquisition of EP Minerals in second-quarter 2018. Centerview Partners LLC was investment banking adviser and Baker Botts LLP was legal adviser to U.S. Silica for the transaction. The Valence Group provided a fairness opinion to U.S. Silica's board of directors.
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