DEFA14A: Solaris Oilfield Infrastructure to Acquire Mobile Energy Rentals for $200 Million, Renames to Solaris Energy Infrastructure

Solaris Oilfield Infrastructure, Inc. (NYSE: SOI) announces a definitive agreement to acquire Mobile Energy Rentals LLC (MER) for $200 million, expanding into distributed power solutions and renaming the company Solaris Energy Infrastructure, Inc.

Summary

• Solaris Oilfield Infrastructure, Inc. (SOI) has agreed to acquire Mobile Energy Rentals LLC (MER) for $200 million, consisting of $60 million in cash and approximately 16.5 million shares of Solaris Class B common stock.
• MER's founders and management will join Solaris post-closing and will collectively own approximately 27% of Solaris' outstanding shares.
• The acquisition will diversify Solaris' business mix, with distributed power infrastructure expected to be >50% of the pro forma business.
• MER's existing power generation asset base of 153 MW is expected to grow to 478 MW by the end of the third quarter of 2025 through an additional $308 million investment in mobile turbines.
• Solaris has secured committed financing of $300 million from Banco Santander, Texas Capital Securities, and Woodforest National Bank to fund the cash portion of the acquisition and the turbine purchases.
• The transaction is expected to close by the end of the third quarter of 2024, pending shareholder approval, regulatory approvals, and customary closing conditions.
• Upon closing, the company will be renamed Solaris Energy Infrastructure, Inc. (NYSE: SEI).
• 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 repaid $14 million of debt in Q2 2024, ending the quarter with $11 million of net debt.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with a strategic acquisition, diversification into high-growth markets, and a commitment to shareholder returns. The financial metrics and management comments further support a favorable sentiment.

Positives

• The acquisition diversifies Solaris' business into the high-growth distributed power market.
• The combined company will have a broader end-market exposure, including data centers and commercial & industrial applications.
• The MER team brings experienced management and technical expertise to Solaris.
• The transaction is expected to be accretive, with a compelling valuation of 4.0x run-rate contracted Adjusted EBITDA.
• Solaris has secured committed financing and is exploring permanent financing options.
• The company is committed to maintaining its current $0.48/share annualized dividend.
• Management, insiders, and MER's founders and management team will collectively own >50% of Solaris total outstanding shares, creating further alignment between Solaris and its shareholders.

Negatives

• The transaction is subject to shareholder and regulatory approvals, which could delay or prevent the closing.
• The integration of MER's operations may present challenges and could impact the expected synergies.
• The company will incur additional debt to finance the acquisition and turbine purchases, increasing its leverage.
• The preliminary Q2 2024 financial results are subject to change and may not be indicative of future performance.

Risks

• The company's ability to consummate the transaction is subject to various risks and uncertainties.
• The company's future financial performance following the transaction is subject to risks and uncertainties.
• The company's financing plans are subject to risks and uncertainties.
• The company's ability to achieve the expected benefits of the transaction is subject to risks and uncertainties.
• The company's ability to manage the integration of MER's operations is subject to risks and uncertainties.
• The company's ability to secure permanent financing is subject to market conditions and other factors.

Future Outlook

Solaris expects to expand its mobile infrastructure solutions offering and address growing power demand from multiple end-markets. The company anticipates closing the transaction by the end of the third quarter of 2024 and will rename itself Solaris Energy Infrastructure, Inc.

Management Comments

• Bill Zartler, Solaris Chairman and Chief Executive Officer: 'We are excited to welcome the MER team to Solaris and expand our mobile infrastructure solutions offering.'
• John A. Johnson, MERs 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 trend towards distributed power solutions to address grid constraints and growing power demand from data centers and other commercial & industrial applications. The company believes reliable power access will become a growing challenge that larger scale, distributed power generation assets are well-positioned to address.

Comparison to Industry Standards

• The press release compares Solaris' valuation to selected publicly-traded comparables, including natural gas compression, power generation, and electric utility companies.
• The EV / 2025 EBITDA multiple for Solaris is 4.2x, which is lower than the multiples of most of the comparable companies listed.
• The current dividend yield for Solaris is not provided in the comparison, but the company states its commitment to maintaining the current $0.48/share annualized dividend.
• Comparible companies listed are: Industry Natural Gas Compression, Residential Gas Turbine OEM, S&P 500, Electric Utility Services, Electric Power Generators, Modular Reactors, and Utilities OEMs.

Stakeholder Impact

• Shareholders: Potential for increased value through diversification and growth.
• Employees: Integration of MER team and potential for new opportunities.
• Customers: Expanded solutions offering and improved service quality.

Next Steps

• Obtain shareholder approval for the transaction.
• Receive regulatory approvals.
• Close the transaction by the end of the third quarter of 2024.
• Rename the company to Solaris Energy Infrastructure, Inc.
• Secure permanent financing.
• Integrate MER's operations into Solaris.

Key Dates

Keywords

acquisition, distributed power, mobile energy rentals, solaris oilfield infrastructure, mergers and acquisitions, energy infrastructure, financial results, adjusted EBITDA, turbine, financing