Dallas’ Eagle Materials Inc. (NYSE: EXP) will pay $225 million to acquire a source of high-quality northern-white frack sand used by the energy industry, the company said Oct. 17.

Eagle will acquire CRS Proppants LLC and its subsidiaries, including Great Northern Sand LLC, to further its growth strategy.

CRS Proppants and Eagle Materials' operations are highly complementary, with existing frack sand operations, the company said.

CRS Proppants operations include:

  • A northern-white frack sand mine and processing facility in Wisconsin that is currently being expanded from about one million to two million tons per year capacity;
  • Existing long-term sales contracts with targeted customers for about 85% of the two million tons per year of capacity;
  • Rail-based trans-load network from the mine into the Permian and other target basins; and
  • A highly experienced operating, sales and logistics team.

For the first nine months of 2014, CRS generated revenue of about $65 million and $12 million of EBITDA, said Ray Young, an analyst for Sterne Agee.

“We’d expect numbers to rise sharply from that level over the next couple of years, for two reasons,” Young said. “First, CRS is in the process of doubling its annual processing capacity from 1 million to 2 million ton. The expansion projects are expected to be completed in the first half of 2015.”

Industrial sand and gravel, was valued at about $2.6 billion last year, it produced by 120 companies from 177 operations in 31 states in 2013. By tonnage produced, the top states include Wisconsin, Illinois, Texas, Minnesota and Oklahoma.

ydraulic fracturing sand, well-packing and cementing sand made up 62% of the U.S. use. Based on tight supply and demand characteristics for frack sand in the Eagle Ford and Permian basins, Sterne Agee no longer assume a decline in Eagle’s frack sand prices in fiscal year 2016 and 2017.

CRS has signed long-term take-or-pay contracts during the past few months covering 85% of the expanded capacity.

“Eagle estimates that CRS should be able to generate EBITDA of about $30/ton under those contracts,” Young said.

The cash purchase price of about $225 million is subject to adjustments for working capital and other items, and will be funded by operating cash flow and borrowings under Eagle's bank credit facility. Before taxes, 2014 revenues for CRS Proppants were $64.7 million, EBITDA $12.2 million and earnings $8.7 million for the nine months through Sept. 30.

Eagle said the acquisition is expected to be immediately accretive and synergies of $5 million are expected to be realized within the first 12 months. The acquisition will roughly double Eagle's frack sand production capacity and expand its frack sand reserves.

Steven Rowley, Eagle Materials' president and CEO, said the acquisition is another key step in Eagle's expansion in the frack sand business.

“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,” Rowley said. “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."

Under the definitive agreement, the acquisition is subject to certain customary conditions, including clearance under the Hart-Scott-Rodino Act. The company currently expects that the acquisition will close during Eagle's third fiscal quarter of the current year.