Hi-Crush Partners LP (NYSE: HCLP) has entered into a contribution agreement with Hi-Crush Proppants LLC (Proppants) to acquire Hi-Crush Blair LLC (Blair), the entity that owns Proppants' raw frac sand processing facility located in Blair, Wisconsin. Blair has 1,285-acres of Northern White reserves, with a plant processing capacity of approximately 2.86 million tons of 20/100 frac sand per year.
Under the terms of the transaction, the partnership will pay cash consideration of $75 million to Proppants, issue 7,053,292 of common units, and pay up to $10 million of contingent earnout consideration. At the closing of the acquisition, the Partnership will own all of Blair's membership interests.
To finance the transaction, Hi-Crush Partners LP priced a primary public offering of 6,500,000 units representing limited partnership interests in the partnership (the "common units") for total gross proceeds (before underwriters' compensation and estimated expenses) of approximately $80.3 million. The partnership granted the underwriters a 30-day option to purchase up to an additional 975,000 common units on the same terms.
“This deal should simplify HCLP's operations and financial structure and, in order to finance the deal, the company issued equity to the market yesterday, intends to use additional equity to close the deal next month, and also may have up to a $10mm contingent payment,” Wunderlich Securities analysts said in a note Thursday.
“While this deal makes sense to simplify HCLP's structure and doesn't change our numbers at this time except for per share numbers given the equity raise dilution, we think it makes sense for the long-term plans of the company,” the analysts continued.
Hi-Crush is an integrated producer, transporter, marketer and distributor of monocrystalline sand, a specialized mineral used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. Hi-Crush owns and operates the largest distribution network in the Marcellus and Utica shales, and has distribution capabilities throughout North America.
Lazard Frères & Co. LLC acted as financial advisor to Proppants. Evercore Partners LLC advised the Conflicts Committee, comprised entirely of independent directors of the Board of Directors of the general partner of the Partnership, which unanimously approved the transaction. Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, J.P. Morgan and UBS Investment Bank are acting as joint book-running managers for the offering.
The acquisition is expected to close in September 2016, subject to regulatory approvals and other closing conditions.