DEFA14A: Solaris Oilfield Infrastructure Announces Acquisition of Mobile Energy Rentals, Expanding into Distributed Power Solutions

Solaris Oilfield Infrastructure is set to acquire Mobile Energy Rentals, diversifying its business into the rapidly growing distributed power generation market.

Summary

• Solaris Oilfield Infrastructure, Inc. (Solaris) has entered into an agreement to acquire Mobile Energy Rentals LLC (MER), a provider of mobile distributed power solutions.
• The acquisition expands Solaris's offerings beyond the oilfield and into commercial and industrial markets, including data centers and grid resiliency.
• The deal is valued at $200 million, consisting of $60 million in cash and $140 million in Solaris Class B shares.
• MER currently generates approximately $12.5 million in quarterly adjusted EBITDA, or $50 million annualized.
• MER has secured orders for additional turbines that will increase its fleet capacity from 153 MW to 478 MW by Q3 2025, potentially adding $75 million to $95 million in adjusted EBITDA on an exit rate basis in 2025.
• Solaris plans to fund the acquisition and future turbine purchases through a combination of debt financing and free cash flow.
• The transaction is expected to close by the end of the third quarter of 2024, subject to shareholder approval and regulatory clearances.
• Upon closing, Solaris will be renamed Solaris Energy Infrastructure and trade under the ticker symbol SEI.

Sentiment

Score: 9

Explanation: The document presents a highly positive outlook for Solaris, highlighting a strategic acquisition, strong growth prospects, and favorable financial metrics. The deal is presented as accretive and strategically sound.

Positives

• The acquisition provides Solaris with an accretive entry into a new, high-growth market.
• MER has a strong customer base and a reputation for reliability.
• The deal diversifies Solaris's revenue streams and reduces its reliance on the oil and gas sector.
• MER is currently sold out, indicating strong demand for its services.
• Significant turbine capacity has been secured through Q3 2025 to meet growing demand.
• The MER management team will remain with the company and hold a significant stake in Solaris, ensuring alignment.
• Solaris' existing infrastructure can support MER's growth plans.
• The combined company is expected to generate significant earnings growth and attractive returns.
• Management, employees and the Board will own over 50% of Solaris post-closing.

Negatives

• Solaris will take on debt to finance the acquisition and turbine purchases.
• The transaction is subject to shareholder approval and regulatory clearances, which could introduce delays or complications.

Risks

• Integration of MER's operations could present challenges.
• Demand for distributed power solutions could be impacted by economic conditions or changes in regulations.
• Competition in the distributed power market could intensify.
• The availability and cost of natural gas could impact profitability.
• Delays in turbine deliveries could impact growth projections.
• Failure to secure long-term contracts for the new turbine capacity could impact financial performance.

Future Outlook

Solaris anticipates significant earnings growth driven by MER's fleet expansion and strong demand for distributed power solutions. The company expects combined adjusted EBITDA to potentially exceed $200 million on an exit rate basis in 2025. Further upside is possible depending on market conditions and equipment utilization.

Management Comments

• Bill Zartler: 'This transaction provides Solaris with an accretive entry into a new product line, with exposure to multiple end-markets both within and outside the oil field.'
• Bill Zartler: 'We believe the combination of MER's distributed power business with Solaris' all electric sand handling equipment advances our strategy to provide innovative solutions for our customers where the use of electrical equipment continues to gain momentum across the oil and gas value chain.'
• John Johnson: 'We recognize the significant value of Solaris' existing offering... that will allow us to scale up and perform for our customers.'
• John Johnson: 'Distributed mobile power is well positioned to eliminate these bottlenecks and can be used to quickly address these dislocations.'
• Kyle Ramachandran: 'We anticipate maintaining a leverage ratio under 2x and reducing it as we utilize cash flow from the combined business to fund any future growth CapEx and use cash flow to reduce overall leverage levels.'

Industry Context

The acquisition positions Solaris to capitalize on the growing demand for distributed power solutions, driven by factors such as grid instability, data center expansion, and the electrification of oilfield operations. This aligns with broader industry trends towards decentralization and increased reliance on alternative energy sources.

Comparison to Industry Standards

• The acquisition multiple of 4x run rate annualized adjusted EBITDA is attractive compared to other transactions in the power generation and oilfield services sectors.
• MER's focus on mobile, natural gas-fired turbines positions it favorably against competitors relying on diesel or less flexible power generation technologies.
• Compared to larger, established power generation companies, MER's mobile solutions offer greater flexibility and faster deployment, addressing immediate power needs.
• Specific comparable companies are not mentioned in the document, making a direct comparison difficult. However, the document highlights MER's competitive advantages in terms of technology, service capabilities, and customer relationships.

Related Party Transactions

• The Contribution Agreement involves related parties, including John A. Johnson, John Tuma, J Turbines, and KTR Management Company, LLC, who are contributing equity interests of MER to Solaris LLC.

Stakeholder Impact

• Shareholders: Potential for increased value through earnings growth and diversification.
• Employees: Potential for expanded career opportunities within the combined company.
• Customers: Access to a broader range of products and services, including distributed power solutions.
• Creditors: Increased debt load, but also improved earnings power and cash flow resilience.

Next Steps

• File a proxy statement with the SEC.
• Seek shareholder approval for the transaction.
• Obtain regulatory approvals.
• Close the transaction by the end of the third quarter of 2024.
• Integrate MER's operations into Solaris.
• Take delivery of new turbines and deploy them to customers.
• Change the company name to Solaris Energy Infrastructure and the ticker symbol to SEI.

Key Dates

Keywords

Distributed Power, Mobile Energy Rentals, Solaris Oilfield Infrastructure, Microgrids, Data Centers, Oil and Gas, Energy Infrastructure, Turbines, Acquisition, Power Generation