Where Will Hi-Crush Partners LP (NYSE:HCLP) Obtain The Funds To Acquire Blair?

Hi-Crush Partners LP (NYSE:HCLP) wants to boost its portfolio of assets and for that reason the company is in the process of acquiring Hi-Crush Blair LLC. The acquisition will cost Hi-Crush no less than $75 million in cash, although stock payment is also involved.

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Considering the pressure that companies in the oil and gas sector are facing and also considering that Hi-Crush only had $39.7 million in cash and short-term investments at the end of the June quarter, the question that quickly comes to mind is where will the funds for the acquisition come from?

Equity offering

This is one issue that the management of Hi-Crush Partners considered before announcing the deal to acquire the assets of Blair. An equity offering appears on the horizon. As such, the company is in the process of selling at least 6.5 million units of its common stock. Through the offering, the company is hoping to generate $80.3 million in gross proceeds. But because it has allowed the underwriters to purchase additional units in case they face over-subscription for the securities being offered, the ultimate gross proceeds from the transaction could exceed $80.3 million.

Funding the acquisition

Once the offering is completed and all the expenses and deductions are made, Hi-Crush Partners will use the net proceeds to finance the acquisition of Blair. However, it is not clear at this juncture what amount of net proceeds will result from the security offering.

The acquisition of Blair will cost Hi-Crush $75 million in cash, but the deal also calls for the company to transfer about 7 million units of its common stock to the owners of Blair. On top of that, the company has agreed to a contingent payment amounting to $10 million.

What’s HCLP getting from the deal?

Blair will add close to 1,285 acres of reserves to Hi-Crush Partners. The acquisition will also boost the company’s scale, thus allowing it to enjoy the economies of scale because Blair’s sand processing capacity is cited at 2.86 million tons per year.

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