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U.S. Silica (SLCA) to Acquire EP Minerals for $750 Million

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U.S. Silica Holdings, Inc. has entered into a definitive agreement to buy EP Minerals in an all-cash deal worth $750 million.

EP Minerals is a worldwide producer of engineered materials derived from industrial minerals with sales more than $200 million. Similar to U.S. Silica’s Industrial and Specialty Products (“ISP”) unit, the company has transformed from a commodity-based business to developing more than 50 new innovative products over the last three years by adding higher-margin, new and value-added products to its mix. Moreover, it has more than 40 products under its new development pipeline at present.

EP Minerals is an attractive and adjacent business to the ISP business of U.S. Silica, given its industry-leading margins, attractive market structure with opportunities to expand sales. The company has strong IP protection and leverages U.S. Silica’s core competencies as a leading logistics and surface mining company.

Notably, EP Minerals’ cash flow is reliable and complements U.S. Silica’s Oil & Gas segment. It also provides a robust platform for growth and expansion through strategic acquisitions and organic opportunities.

EP Minerals’ industrial minerals are used in applications such as absorbents, filter aids and functional additives such as biofuels, oil and gas, farm, paint, plastics, insecticides and food and beverages.

Moreover, U.S. Silica's ISP segment is on track for considerable growth through the expansion of base business volume and pricing along with strategic acquisitions in adjacent, attractive markets and by developing and marketing new higher margin and value-added products. The segment’s revenues went up 20% year over year to $54.5 million in fourth-quarter 2017 while overall sales volume rose 7% to around 0.851 million tons.

The company will finance the deal and refinance its current debt through an expanded $100 million revolving credit facility and a new seven-year, $1.280 billion committed term loan B credit facility. Notably, U.S. Silica’s long-term debt fell roughly 0.3% to $506.7 million at the end of 2017.

U.S. Silica expects the transaction to close in the second quarter of 2018 and be accretive in the fourth quarter.

Shares of U.S. Silica have lost 20.1% over the past three months, underperforming the industry’s 4.6% decline.



Zacks Rank and Stocks to Consider

U.S. Silica currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are LyondellBasell Industries N.V. (LYB - Free Report) , CF Industries Holdings, Inc. (CF - Free Report) and Daqo New Energy Corp. (DQ - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

LyondellBasell has an expected long-term earnings growth rate of 9%. Its shares have moved up 17.9% over a year.

CF Industries has an expected long-term earnings growth rate of 8%. Its shares have gained 26.2% over a year.

Daqo New Energy has an expected long-term earnings growth rate of 7%. Its shares have rallied 140.2% over a year.

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