Tudor Pickering Holt Energy Notes Excerpt From March 23, 2018: U.S. Silica Announces $750mm Acquisition

As SLCA looks to smooth out the volatility inherent in energy cycles, the company made it clear a large industrial acquisition was on the radar and they’ve now put their money where their mouth is; this will make SLCA look more like the combined FMSA/Unimin, which we view as an overall positive despite the lofty sticker price and valuation. US SLCA paying $750mm (financed with term loan debt) or ~12.5x TTM EBITDA to acquire EP Minerals ($200mm TTM revenue, ~$60mm EBITDA, ~25% EBITDA margins)…optically high valuation multiple but the stable nature of industrial miners’ cash flows keeps the multiple in-line with public industrial peers (SLCA ~4.9x 2018 EV/EBITDA, comps trade ~10-13x EV/EBITDA). We certainly won’t be the experts here but EP Minerals mines diatomaceous earth (DE), bentonite and perlite filter aids, absorbents and functional additives which flow into a variety of industries (e.g. filtration — 50% of revenue, absorbents, catalysts, additives). The company’s revenues are 72% N. America, 28% international, and its operations appear fairly (or very) similar to sand mining.


Well telegraphed, SLCA doubles down on ISP for 12.5x EV/EBITDA

Sector: Oil Service | Ticker: SLCA | Recommendation: BUY | Target: NA | Close: $26.63