8-K: Solaris Oilfield Infrastructure to Acquire Mobile Energy Rentals, Expanding into Distributed Power

Solaris Oilfield Infrastructure has agreed to acquire Mobile Energy Rentals for $200 million, marking its entry into distributed power solutions and a name change to Solaris Energy Infrastructure.

Summary

• Solaris Oilfield Infrastructure is set to acquire Mobile Energy Rentals (MER) for $200 million, consisting of $60 million in cash and approximately 16.5 million shares of Solaris Class B common stock.
• The acquisition will expand Solaris's business into distributed power solutions, with a pro forma business mix expected to be over 50% distributed power infrastructure.
• MER's current power generation asset base is 153 MW and is expected to grow to 478 MW by the end of the third quarter of 2025 with an additional investment of approximately $308 million.
• The transaction is expected to close by the end of the third quarter of 2024, subject to shareholder approval and regulatory clearances.
• Solaris will be renamed Solaris Energy Infrastructure, Inc. (NYSE: SEI) upon closing.
• Solaris expects second quarter 2024 revenue to be between $70 million and $75 million and Adjusted EBITDA to be between $20 million and $21 million.
• Solaris has secured a $300 million 364-day bridge loan facility to finance the cash portion of the acquisition and the purchase of additional turbines.

Sentiment

Score: 9

Explanation: The document is highly positive, highlighting a strategic acquisition, strong financial performance, and a clear path for future growth. The management commentary is enthusiastic, and the company is taking steps to secure financing and integrate the new business.

Positives

• The acquisition provides access to multiple, high-growth end-markets, including data centers and other commercial & industrial applications.
• The initial purchase multiple is 4.0x run-rate contracted Adjusted EBITDA, with MER's third quarter 2024 Adjusted EBITDA forecasted to be approximately $12 million $13 million.
• The majority of MER's asset base is currently under contract with a leading provider of artificial intelligence computing solutions.
• The combined company will have operational synergies via Solaris's existing infrastructure.
• The pro forma financial profile is conservative, with <2.0x leverage at closing on a run-rate basis.
• The company is committed to maintaining the current $0.48/share annualized dividend.
• Management, insiders, and MER's founders and management team will collectively own >50% of Solaris total outstanding shares.

Negatives

• The transaction is subject to shareholder vote, receipt of regulatory approvals, and other customary closing conditions, which could delay or prevent the acquisition.
• The preliminary Q2 2024 financial results are subject to change and could differ materially from the estimates.

Risks

• The transaction is subject to shareholder vote, regulatory approvals, and other customary closing conditions, which could delay or prevent the acquisition.
• The preliminary Q2 2024 financial results are subject to change and could differ materially from the estimates.
• The company is exploring various financing avenues, and there is a risk that permanent financing may not be secured on favorable terms.
• The integration of MER's operations and management team may present challenges.
• The company is exposed to risks associated with the volatility in global oil markets and the COVID-19 pandemic.

Future Outlook

Solaris expects to secure permanent financing prior to closing and is exploring various financing avenues. The company anticipates the transaction to close by the end of the third quarter of 2024 and will be renamed Solaris Energy Infrastructure, Inc. (NYSE: SEI). MER's fleet is expected to grow to 478 MW by the end of the third quarter of 2025.

Management Comments

• Bill Zartler, Solaris Chairman and CEO: 'We are excited to welcome the MER team to Solaris and expand our mobile infrastructure solutions offering.'
• John A. Johnson, MER's founder and co-owner: 'We look forward to joining the Solaris team. We are proud of the market position that we have built at MER and are excited to continue scaling the business.'

Industry Context

The acquisition reflects a broader trend of energy companies diversifying into distributed power solutions to address growing demand from various sectors, including data centers and other commercial & industrial applications. The document highlights the challenges of grid connectivity and the need for reliable power solutions, positioning the combined company to capitalize on these trends.

Comparison to Industry Standards

• The document compares Solaris's valuation to selected publicly-traded comparables, showing a lower EV/2025 EBITDA multiple than many peers.
• The document highlights the high dividend yield of Solaris compared to the S&P 500 and other industry peers.
• The document notes that some peers in the electric equipment sector have negative Adjusted EBITDA estimates, suggesting Solaris is in a stronger financial position.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the company's diversification and growth potential.
• Employees will have new opportunities with the expanded company.
• Customers will have access to a broader range of solutions.
• Suppliers will have new opportunities with the combined company.

Next Steps

• Shareholder vote on the acquisition.
• Receipt of regulatory approvals.
• Closing of the transaction by the end of the third quarter of 2024.
• Renaming of the company to Solaris Energy Infrastructure, Inc. (NYSE: SEI).
• Integration of MER's operations and management team.
• Securing permanent financing.
• Deployment of additional mobile turbines.

Key Dates

Keywords

acquisition, distributed power, mobile energy rentals, solarisoilfield, energy infrastructure, turbines, data centers, adjusted ebitda, capital redeployment, electrification