IPO Report: FMSA Holdings (FMSA)

FMSA Holdings ($FMSA) is one of the world’s largest providers of sand-based proppant solutions and for over 30 years has been a pioneer in the development of high performance proppants used by oilfield service and E&P companies to enhance the productivity of their oil and gas wells. It is based in Chesterland, Ohio.

Ten other companies are scheduled for the week of Sept. 29, 2014. The full IPO calendar is available at IPOpremium.

Joint-managers: Morgan Stanley, Wells Fargo Securities, and Barclays.

Co-managers: Goldman Sachs, Jefferies, J.P. Morgan, KeyBanc Capital Markets, RBC Capital Markets, Baird, Cowen, PNC Capital Markets, Raymond James, Scotiabank-Howard FMSAil, Simmons, Tudor, Pickering, and Holt.

FMSA scheduled a $1 billion IPO with a market capitalization of $2.736 billion at a price range midpoint of $22.50 for Friday, October 3, 2014 on the NYSE. SEC filings

FMSA Holdings IPO Report

Valuation

Glossary

Conclusion

Neutral minus

Top line rev +40%, income +14.5%

P/E of 17, price-to-tangible bk of  -13

100% to shareholders

Discount to HCLP but doesn't pay a dividend.

Business

Fairmount Santrol (FMSA) is one of the world’s largest providers of sand-based proppant solutions and for over 30 years has been a pioneer in the development of high performance proppants used by oilfield service and E&P companies to enhance the productivity of their oil and gas wells.

Fairmount Santrol offers the broadest range of proppants available in the market today, including high quality sand and a spectrum of resin coated products, all of which exceed API specifications.

Additionally, for more than 120 years, FMSA and predecessor companies have provided high quality sand-based products, strong technical leadership and applications knowledge to end users in the I&R markets.

FMSA believes its two primary market segments are complementary. FMSA's11 ability to sell to a wide range of customers across multiple end markets allows FMSA to maximize the economic recovery of its reserve base.

Reserve base

FMSA has one of the largest sand reserves and processing asset bases in the industry, including, as of December 31, 2013, 798.2 million tons of proven mineral reserves, 11 active sand processing facilities with 12.3 million tons of annual sand processing capacity, a resin manufacturing facility and 11 coating facilities with 2.4 million tons of annual coating capacity.

From 2009 to 2013, FMSA expanded its annual raw frac sand and coating capacities by approximately 6.0 million and 1.5 million tons, respectively, through a combination of organic growth and acquisitions. Coating facilities include operations in Mexico, Denmark and China, through which FMSA serve international oil and gas markets.

FMSA is capable of Class I railroad deliveries to each of North America’s major oil and gas producing basins and FMSA also have the flexibility to ship product via barge and trucks to reach customers in certain basins.

FMSA operates an integrated logistics platform consisting of 46 proppant distribution terminals with significant associated storage, 32 of which exclusively handle FMSA's products.

Since 2011, FMSA developed or acquired 24 distribution terminals, providing significant additional annual transloading capacity.

FMSA also services I&R end markets through seven additional terminals.

As of August 15, 2014, FMSA had a fleet of over 8,500 railcars and expect this fleet to grow to over 13,000 through 2016.

By the end of the third quarter of 2014, FMSA also expect to have expanded its unit train capabilities to three production facilities and three in-basin terminals, which FMSA expect to significantly reduce freight costs and improve cycle times for our railcar fleet.

As one of the nation’s longest continuously operating mining organizations, FMSA developed a strong commitment to environmental stewardship and to the three pillars of Sustainable Development: People, Planet and Prosperity. Our strong commitment to safety is reflected in the health and safety of our employees and is illustrated by achieving a lost-time incident rate that is less than half the industry average. From 2011 through June 30, 2014, our employees have demonstrated our commitment to our communities by donating approximately 36,000 hours of company-paid volunteer time, as FMSAll as significant personal volunteer time, into the communities in which FMSA live and operate.

Environmental

FMSA is focused on environmental stewardship, and ten of its facilities now generate zero waste to landfills.

Additionally, FMSA have successfully executed annual initiatives to reduce carbon emissions and has  planted over 225,000 trees since 2011 in order to offset Tier I and Tier II carbon emissions.

Intellectual property

FMSA's intellectual property primarily consists of patents, trade secrets, know-how, trademarks, including the name “Fairmount Santrol”, and products such as “PowerProp”, “Propel SSP” (patent pending), “HyperProp” and “CoolSet.”

FMSA holds numerous U.S. and foreign granted patents that are still in force as well as many U.S. and foreign patent applications that are still pending.

FMSA owns patents on each of its major, differentiated proppant product lines, except CoolSet.

FMSA has not granted any third-party rights with respect to its patents.

The majority of patents have an expiration date after 2025.

FMSA has not yet filed a patent for CoolSet and patents for HyperProp have recently expired.

With respect to trade secrets and know how, FMSA's extensive experience with a variety of different products enables it to offer customers a wide range of proppants for their particular application.

Competition

There are numerous large and small producers in all sand producing regions of the United States with whom FMSA competes.

Main competitors in the raw frac sand market include Badger Mining Corporation, Ceramics Inc., Emerge Energy Services LP, Hi-Crush Partners, LP, Preferred Sands LLC, Unimin Corporation and U.S. Silica Holdings, Inc.

Many new entrants to the raw frac sand market primarily compete on an FOB-plant basis and lack comparable transportation infrastructure to meet customer demands in-basin.

Main competitors in the coated products market include Momentive Performance Materials Inc., Unimin Corporation, Atlas Resin Proppants LLC, Preferred Sands LLC and CARBO Ceramics Inc.

The most important factors on which FMSA competes in both markets are product quality, performance and sand and proppant characteristics, transportation capabilities, proximity of supply to well site, reliability of supply and price.

FMSA's only substantial competitors across both markets are Unimin Corporation and Badger Mining Corporation (which owns Atlas Resin Proppants LLC).

5% shareholders pre-IPO

ASP FML Holdings, LLC, 53.3%

Fairmount Minerals, Ltd. Stock Bonus Trust & Plan, 5.1%

Charles D. Fowler, under the Charles D. Fowler Declaration of Trust 7.5%

Dividends

No dividends are planned

Use of proceeds

100% to selling shareholders.