Frack sand supplier U.S. Silica Holdings Inc. (NYSE: SLCA) has its timing down, if all goes well with its stock offering, with plenty of money too.

U.S. Silica wants to take advantage of the meager returns faced by proppant companies and other targets to buy. The company believes the sand industry is “ripe for consolidation” and that it will be capable of growing organically. U.S. Silica could find its way toward a 40% share of the sand supplier market.

To that end, on March 16 the Maryland company upped the public offering of its common stock by 695,700 shares to 8.7 million shares. Estimated total gross proceeds would generate $173.9 million.

U.S. Silica said it intends to use the net proceeds of the offering for general corporate purposes including the potential acquisition of complementary businesses or assets.

“From our vantage point, the offering was not imperative with regards to liquidity, making the possibility of an acquisition seem probable,” said John Daniel, senior research analyst with Piper Jaffray & Co., in a March 17 report. “Silica would be a natural consolidator in an industry desperate for consolidation.”

In a March 21 presentation, U.S. Silica said its capital raises is part of an offensive to make accretive M&A deals.

The company said an opportunity-rich environment is developing and M&A will not compromise its balance sheet.

The company’s stock is up by about 39% since January and industry fundamentals have deteriorated further since that time, Daniel said.

“We submit that the company is wisely raising additional liquidity given the uncertainty surrounding the depth and duration of the current downcycle,” he said.

The offering would be about 15% dilutive to Silica shareholders if a greenshoe is exercised by the offering’s underwriters.

“U.S. Silica would be largely focused on low-cost sand producers with advantageous rail access,” said Praveen Narra, analyst with Raymond James. “We would note that the company has also stated that it would also like to grow its industrials business, though we would be surprised if any ‘near-term’ acquisition wasn't oil and gas related.”

Marc Bianchi, analyst with Cowen and Co., said that near-term M&A could include non-traditional frack sands, logistics assets or industrial and specialty products.

“Longer term U.S. Silica continues to view itself as a market consolidator and is still committed to a transformational acquisition which could include public or large private competitors. Such a transformational deal would likely require more capital,” he said.

Following the offering, the company will have about $470 million in cash and cash equivalents and net debt will be reduced to $20 million.

Barclays Capital Inc. and Morgan Stanley & Co. LLC are joint book-running managers for the offering.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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