Background and Challenge
A private equity firm and its portfolio company were evaluating growth options available to the portfolio company, which included the potential acquisition of a logistics company focused on the supply of proppant (frac sand) to oilfield service companies. The portfolio company and its owners believed that there were potential synergies associated with a combination of the portfolio company and the target.
The client engaged L.E.K. Consulting to evaluate the commercial stability of the target’s core business, understand the growth prospects of the business going forward and explore potential synergies with the portfolio company.
Approach and Recommendations
We developed an in-depth view on the target and competitive landscape, a high-level view of the outsourced logistics market, and a thorough understanding of the customer selection criteria and success factors for expansion into new basins. Specifically, we:
- Evaluated the dynamics and drivers of outsourcing proppant logistics in target basins
- Determined broader oil and gas market trends and growth expectations (e.g., energy prices, number of wells drilled / rig activity, length of well, horizontal vs. vertical wells, etc.)
- Conducted primary research with market participants to understand criteria for outsourced logistics, strengths and weaknesses of current competitors, vertical integration among players along the supply chain, evolving propensity to outsource proppant logistics, unmet needs, and risk/barriers of expansion into new basins
Our final deliverable included market size and growth expectations for outsourced proppant logistics (segmented by basin), profiles and interview commentary of various players (e.g. sand suppliers, transloaders, railroads, sand haulers) along the supply chain, the target’s revenue analysis and forecast, and analysis of potential synergies/dis-synergies between the portfolio company and the target.
Based on our work, the client acquired the target as part of a forward integration strategy. Post-acquisition, we were re-engaged by the client to develop a detailed roadmap and supporting detailed integration plans to reach the value-maximizing potential of its acquisition.