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Atlas Energy Solutions (AESI) to Acquire Hi-Crush

February 27, 2024 6:00 AM EST

Atlas Energy Solutions Inc. (NYSE: AESI) (“Atlas” or the “Company”) today announced that it has entered into a definitive agreement with Hi Crush Inc. ("Hi-Crush") to acquire all of Hi-Crush’s Permian Basin proppant production assets and North American logistics operations in a transaction valued at $450 million (1).

The transaction consideration includes $150 million in up-front cash, $175 million in shares of common stock of AESI and $125 million in deferred cash payments in the form of a Seller’s Note. Both the up-front cash consideration and the principal amount of the Seller's Note are subject to revision for customary post-closing adjustments.

Acquisition Highlights

  • Combination brings together two of the leading innovators in the Permian proppant space, and two of the largest holders of premium giant open dune sand reserves and resources in the Permian
  • Pro forma production capacity expected to be ~28 million tons, with ~80% of pro forma 2024 production capacity contracted, accelerating free cash flow generation and shareholder returns
  • Adds ~12 mmtpy of production capacity (~5 million tons in Kermit, TX, proximal to Atlas's existing Kermit facilities and ~7 million tons from OnCore’s distributed mining network) (2)
  • We expect the acquired assets to contribute $110-125 million in Adjusted EBITDA in 2024, which implies on a full run-rate basis, a valuation of approximately 3x 2024 Adjusted EBITDA.
  • Broadens Atlas’s logistics offering through the addition of Pronghorn, a leading multi-basin provider of proppant logistics and wellsite services
  • Estimated to be immediately double-digit accretive to CFPS and EPS (3)
  • Expected to realize more than $20 million in annual synergies by 2026
  • Acquisition maintains low and flexible operating cost structure and a strong margin profile
  • Combines Atlas’s Delaware Basin-leading logistics offering (Dune Express) with Hi-Crush’s Midland Basin-leading logistics offerings (Oncore + Pronghorn) to drive significant operational efficiencies
  • The transaction is expected to close before the end of the first quarter of 2024

Bud Brigham, Executive Chairman and CEO of Atlas commented, "This is a great day for Atlas and Hi-Crush, we are thrilled to bring these two great organizations together. Both companies have led the industry’s innovations to drive efficiencies in proppant and logistics in different but complementary ways, a testament to the high quality people involved. Combining the teams, their technologies and best practices, as well as their complementary geographical footprint, should compound constructively to the benefit of our shareholders. It also furthers our goal to lead the industry in transitioning the Permian, already the premier producing region in the country, to becoming the most efficient and livable energy manufacturing center in the world."

John Turner, President and CFO of Atlas commented, “Over the years both Atlas and Hi-Crush have invested significant capital in their proppant and logistics businesses to drive efficiency gains for our customers at the well site - Atlas with its Dune Express, high efficiency trucking operations, and autonomous trucking and Hi-Crush with its OnCore distributed mining network and Pronghorn logistics platform. These investments have supported a consolidating industry that has quickly scaled. We look forward to continuing to invest to drive innovation and efficiencies at the well site.”

Dirk Hallen, CEO of Hi-Crush commented, “I’m so proud of all that our team has accomplished over the past several years. I thank our employees for their relentless effort restoring Hi-Crush to a leadership position in our industry and thank our partners at Clearlake Capital Group and Whitebox Advisors for their support. I echo Bud and John’s excitement in uniting two of the most innovative players in frac sand under Atlas. There is no doubt that this winning combination will be transformative for our industry, employees, customers, and shareholders.”

Colin Leonard, Hi-Crush Board Chairman and Partner at Clearlake Capital Group L.P. added, “This transaction represents an important milestone for Hi-Crush after going through a strategic transformation over the past several years in partnership with Dirk and the broader team. The leadership has driven innovation and growth, as well as transformed the operational footprint of the business to address the evolving needs of our customers. Atlas’ investment reflects their conviction in the strategy, and we look forward to all that we will accomplish together.”

Pro Forma Estimated 2024 Outlook

The transaction has an effective date of February 29, 2024 and as such, Atlas will begin to include Hi-Crush’s financial results in its financial results from March 1, 2024 onwards. The guidance below reflects this partial-year ownership of the Hi-Crush assets and will be impacted by the timing of the completion of the Dune Express and additional Oncore deployments.

On a combined basis, we'll have 28 million tons of available production capacity, increasing to about 29 million tons in 2025 with a full year's contribution and the benefit of these additional Oncore deployments. As our contracted volumes and Permian activity levels remain strong, and completions efficiencies continue to compound proppant usage, we expect to continue to operate at 85% to 90% utilization going forward. Taking into account Hi-Crush’s contracts, we expect our sand prices for 2024 to average between $26-$28 per ton. Assuming just over three quarters of contribution from Hi-Crush, we expect 2024 Adjusted EBITDA to range between $425 to $475 million. We expect total capex for 2024 to be between $335 and $360 million. This includes between $285 and $305 million in growth capex, consisting of $220 million for the construction of the Dune Express, between $25 and $45 million for Oncore deployments and another $40 million attributed to other capex. We are forecasting maintenance capex for 2024 will range between $50 and $55 million.

Financing Details

  • Our ABL facility has been amended to, among other things increase the maximum borrowing availability to $125 million. Atlas intends to draw ~$50 million at closing
  • Our Stonebriar Term Loan has been amended to, among other things install a new $150 million Acquisition Term Loan to be drawn at closing
  • Atlas will use a combination of the above debt facilities to fund the cash component of the up-front purchase price and to add cash to the balance sheet to fund capital expenditures associated with Hi-Crush’s near-term investments in Oncore #8 and #9
  • The number of shares to be issued to the seller at closing will be 9,711,432, as calculated pursuant to a 10-day volume weighted average share price as defined in the Merger Agreement

Advisors

Piper Sandler & Co. is serving as lead financial advisor to Atlas. Goldman Sachs & Co. LLC is also advising Atlas. Vinson & Elkins LLP is serving as legal advisor in association with the transaction.

Moelis & Company LLC is serving as exclusive financial advisor to Hi-Crush. Baker Botts LLP is serving as legal advisor in association with the transaction.

Conference Call

The Company will host a conference call to discuss the transaction along with financial and operational results on Tuesday, February 27, 2024 at 8:00am Central Time (9:00am Eastern Time). Individuals wishing to participate in the conference call should dial (877) 407-4133. A live webcast will be available at https://ir.atlas.energy/. Please access the webcast or dial in for the call at least 10 minutes ahead of the start time to ensure a proper connection. An archived version of the conference call will be available on the Company’s website shortly after the conclusion of the call.

The Company will also post an updated investor presentation titled “Hi-Crush Acquisition Presentation”, at https://ir.atlas.energy/ in the "Presentations” section under “News & Events” tab on the Company’s Investor Relations webpage prior to the conference call.



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