Dallas-based Eagle Materials Inc. has agreed to pay $225 million to buy hydraulic fracturing (fracking) sand producer CRS Proppants LLC to expand market share in the Permian Basin, Eagle Ford Shale and Midcontinent, as well as nearly double its sand capacity and reserves.
Eagle, originally part of Centex Corp., is a building materials supplier with a sand mine in Illinois and 40 manufacturing facilities across the United States that distribute proppant, cement, gypsum wallboard, recycled paperboard and concrete/aggregates.
With Tulsa-based CRS and subsidiary Great Northern Sand LLC, Eagle would gain a Northern White sand manufacturing facility in New Auburn, WI, and transload facilities in El Reno, OK, and four Texas locations in San Antonio, Gonzales, Odessa and Big Spring.
"The acquisition represents another key step in Eagle's growth strategy for the frack sand business," said Eagle CEO Steven Rowley. "We are building a low delivered cost frack sand supply system that will serve a number of targeted shale plays with the highest-quality Northern White sand.
"This acquisition will enable us to immediately serve the Permian Basin in particular with increased production, while creating synergies with our other operations in Texas that are currently serving the Eagle Ford with sand from our Illinois mine."
The New Auburn facility's capacity now is being doubled to 2 million tons/year, Eagle noted. CRS also has existing long-term sales contracts for 85% of the planned capacity expansion.
Sterne Agee analyst Todd Vencil said Friday the deal "will be well received...given the attractive valuation and the fact that the 85% of the target's capacity is sold under long-term contracts."
In the first nine months of this year, CRS generated around $65 million of revenue, Vencil noted. "However, we'd expect the numbers to rise sharply from that level over the next couple of years" on the expanded capacity and the long-term take-or-pay contracts.
"Given energy price concerns, one could argue that this might not be the best time to invest in frack sand," said Vencil. "However, we'd expect that CRS' long-term contracts will assuage the market's fears, and that the stock will react positively to this deal..."