Solaris Energy Infrastructure Inc

Current report

Solaris faces a variety of risks related to its entry into a new line of business following the completion of the MER Acquisition.

Current report

Solaris’s entry into scaled distributed power solutions is expected to enhance Solaris’s position as a mobile equipment and logistics solution provider to the oil and gas industry as well as diversify its business.

Current report

Entry into a new line of business may also subject Solaris to new laws and regulations with which it is not familiar and may lead to increased litigation and regulatory risk. Further, Solaris’s management team has not directly engaged in the distributed power solutions business before, and its lack of experience may result in delays or further complications to the new business. If Solaris is unable to successfully implement the acquired business of MER, its revenue and profitability may not grow as it expects, its competitiveness may be materially and adversely affected, and its reputation and business may be harmed.

Current report

The market price for our Class A common stock following the closing of the MER Acquisition may be affected by factors different from those that historically have affected or currently affect our Class A common stock.

Current report

Results of operations of Solaris following the completion of the MER Acquisition may be affected by some factors that are different from those that have affected Solaris’s results of operations in the past. Accordingly, the market price and performance of our Class A common stock is likely to be different from the performance of our Class A common stock in the absence of the MER Acquisition. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.

Current report

Solaris incurred significant additional indebtedness in connection with the MER Acquisition, which indebtedness may limit the Company’s operating or financial flexibility and could subject the Company to potential defaults under the applicable financing agreements.

Current report

Upon closing of the MER Acquisition Solaris entered into a senior secured term loan agreement in the principal amount of $325 million to fund the MER Acquisition and the capital commitments contemplated at the acquisition closing date. Solaris also entered into a new revolving credit facility, which provides for borrowings up to the lesser of $75 million and a borrowing base determined by a percentage of eligibles accounts. These financing agreements could have negative consequences on Solaris, including, among other things, (i) requiring Solaris to dedicate a larger portion of cash flow from operations to servicing and repayment of the debt, (ii) reducing funds available for strategic initiatives and opportunities, working capital and other general corporate needs, (iii) limiting Solaris’s ability to incur additional indebtedness, which could restrict flexibility to react to changes in the business, its industry and economic condition following the Contribution, and (iv) placing Solaris at a competitive disadvantage compared to competitors that have less debt.

Current report

Additionally, the financing agreements subject the Company to significant financial and other restrictive covenants, including, but not limited to, restrictions on incurring additional debt and certain distributions, as well as a certain leverage and minimum fixed charge coverage ratios Solaris must maintain. Solaris’s ability to comply with these financial condition tests can be affected by events beyond its control. If it is unable to remain in compliance with the financial covenants of the financing agreements, then amounts outstanding thereunder may be accelerated and become due immediately or Solaris may be unable to access the funds available. Any such acceleration or unavailability of funds could have a material adverse effect on Solaris’s financial condition and results of operations.

Current report

The Company’s Solaris Power Solutions segment is dependent on its relationships with key suppliers to obtain equipment for its business.

Current report

The power generation business is dependent on a limited number of key suppliers for access to the unique equipment used in the provision of the Company’s offering. If the Company fails to maintain adequate relationships with such suppliers or if it fails to receive equipment from its suppliers in a timely manner, then its competitive position may be harmed and its operations, financial conditions and/or cash flows may be negatively impacted.

Current report

In addition, the prices of certain equipment may continue to experience inflationary pressures that could further increase such costs. The Company may not be able to pass on these costs to its customers, which could have a material adverse impact on its results of operations, financial condition and/or cash flows.

Current report

Unavailability of, and lengthy delays in obtaining, the necessary equipment may result from a number of factors affecting the Company’s suppliers including capacity constraints, labor shortages or disputes, supplier product quality issues and suppliers’ allocations to other purchasers. These risks can be magnified in a weak economic environment or following increases in demand arising from an economic downturn, but are also generally present due to the nature of the Company’s business and its dependence on highly-specialized equipment. Such disruptions could result in the Company’s inability to effectively meet the needs of its customers and could result in a material adverse effect on operations, financial condition and/or cash flows.

Current report

Many of the Company’s power systems involve long sales cycles.

Current report

The sales cycle for the Company’s power systems, from initial contact with potential customers to the commencement of field delivery, may be lengthy. Customers generally consider a wide range of solutions before making a decision to rent or to purchase power systems. Before a customer commits to rent or purchase power systems, they often require a significant technical review, assessment of competitive offerings and approval at a number of management levels within their organization. During the time the Company’s customers are evaluating its offerings, the Company may incur substantial sales and marketing, engineering, and research and development expenses.

Current report

The Company’s customers may not continue to outsource their power system needs.

Current report

The Company’s customers can evaluate a wide range of applications and equipment to address standby and/or prime power generation needs. As a result of the significant resources and expertise required to develop these systems, certain of these customers have historically chosen to outsource the provision of power generation to the Company. To a significant extent, the Company depends on customers continuing to outsource their power generation needs. Customers may not continue to outsource as much or any of their power generation needs in the future or may seek alternative solutions.

Previous report

The Company’s ability to complete the MER Acquisition is subject to various closing conditions, including obtaining the required shareholder approval and regulatory clearance, which may impose conditions that could adversely affect the Company or cause the MER Acquisition not to be completed.

Previous report

The MER Acquisition is subject to a number of conditions to closing as specified in the definitive agreement. These closing conditions include, among others, including (i) approval of the stock issuance by Company shareholders, (ii) the Class A common stock issuable upon exchange of the Solaris LLC Units and shares of Class B common stock to be issued as consideration having been authorized for listing on the NYSE, (iii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iv) the absence of any injunction, order, decree or law preventing, prohibiting or making illegal the consummation of the MER Acquisition, (v) with respect to each party, (A) the accuracy of the other party’s representations and warranties, subject to specified materiality qualifications, (B) compliance by the other party with its covenants in the definitive agreement in all material respects and (C) the absence of a “Material Adverse Effect” (as defined in the definitive agreement) with respect to the other party since the date of the definitive agreement that is continuing and (vi) in the case of the Company, the receipt of certain required financial statements and corresponding interim financial statements of MER as of and for any quarterly period(s) ended more than 45 days prior to the closing of the MER Acquisition.

Previous report

No assurance can be given that the required shareholder approval and regulatory clearance will be obtained or that the other required conditions to the closing of the MER Acquisition will be satisfied. Even if regulatory clearance is obtained, no assurance can be given as to the terms, conditions and timing of such clearance, including whether any required conditions will materially adversely affect the combined company following the closing of the MER Acquisition. Any delay in completing the MER Acquisition could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that Solaris Inc. and MER expect to achieve if the MER Acquisition is successfully completed within its expected time frame. Solaris Inc. can provide no assurance that these conditions will not result in the abandonment or delay of the MER Acquisition. The occurrence of any of these events individually or in combination could have a material adverse effect on the Company’s results of operations and the trading price of the Class A common stock.

Previous report

Because the cash consideration is subject to certain adjustments, MER does not have full certainty as to the final cash consideration amount that will be paid, and such amount may be materially higher than was anticipated upon the Company’s entry into the definitive agreement.

Previous report

Pursuant to the definitive agreement, the cash consideration to be paid in connection with the contribution is subject to certain adjustments.

Previous report

Because certain of the individual items forming the adjustments to be made to the cash consideration are not knowable with full certainty by the Company prior to the contribution, the final cash consideration paid by Solaris LLC

Previous report

may be materially higher than the base cash consideration of $60 million. If the cash consideration is materially higher than expected, the value of the contribution to the Company and its current stockholders may be materially less than was anticipated upon the Company’s entry into the definitive agreement.

Previous report

Combining the Company’s business with MER’s may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the contribution, which may adversely affect the combined company’s business results and negatively affect the value of the Class A common stock.

Previous report

The success of the contribution will depend on, among other things, the ability of the two companies to combine their businesses in a manner that facilitates growth opportunities and realizes expected cost savings. The combined company may encounter difficulties in integrating the Company’s and MER’s businesses and realizing the anticipated benefits of the contribution. The combined company must achieve the anticipated improvement in free cash flow generation and returns and achieve the planned cost savings without adversely affecting current revenues and operations. If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the contribution may not be realized fully, or at all, or may take longer to realize than expected.

Previous report

The contribution involves the combination of two companies which currently operate, and until the completion of the contribution will continue to operate, as independent companies. There can be no assurances that the businesses can be integrated successfully. It is possible that the integration process could result in the loss of key employees from both companies; the loss of commercial and vendor partners; the disruption of the Company’s, MER’s or both companies’ ongoing businesses; inconsistencies in standards, controls, procedures and policies; unexpected integration issues; higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated.

Previous report

The combined company will be required to devote management attention and resources to integrating its business practices and operations, and prior to the contribution, management attention and resources will be required to plan for such integration. An inability to realize the full extent of the anticipated benefits of the contribution and the other transactions contemplated by the definitive agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company.

Previous report

In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. There are a large number of processes, policies, procedures, operations and technologies and systems that must be integrated in connection with the contribution and the integration of MER’s business. Although the Company expects that the elimination of duplicative costs, strategic benefits, and additional income, as well as the realization of other efficiencies related to the integration of the business, may offset incremental transaction and contribution-related costs over time, any net benefit may not be achieved in the near term or at all. If the Company and MER are not able to adequately address integration challenges, the Company may be unable to successfully integrate operations or realize the anticipated benefits of the integration of the two companies.

Previous report

Finally, Solaris LLC intends to use a combination of debt financing and free cash flow generated from the legacy Solaris Inc. business to fund the cash due at closing, in addition to the acquisition of approximately $308 million of on-order turbines MER has previously committed to purchase. Although Solaris Inc.’s obligation to complete the contribution is not conditioned upon obtaining financing, Solaris Inc. has secured committed financing from a group led by Banco Santander in the form of a $300 million 364-day senior secured bridge term loan facility. The Company expects to obtain alternative financing for its cash needs relating to the contribution prior to closing, in which case it would not expect to draw upon the Santander Facility; however, the Company may be unable to obtain such alternative financing on attractive terms or at all. If the Company is unable to obtain such alternative financing prior to closing such that the Company draws from the Santander Facility at closing of the contribution, the Company expects to refinance the Santander Facility promptly thereafter.

Previous report

The ownership percentage of current Solaris Inc. stockholders will be significantly diluted by the issuance of Class B common stock in connection with the MER Acquisition.

Previous report

The issuance of Class B common stock in connection with the MER Acquisition will result in significant dilution of the ownership percentage of the Company of current Company stockholders following the contribution. Based on the estimated number of shares of the Company’s Class A and Class B common stock outstanding immediately prior to the execution of the definitive agreement, current Company stockholders are expected to own approximately 73% of the Company following the contribution, whereas the holders of the issued and outstanding equity interests of MER are expect to own approximately 27% of the Company following the contribution. Consequently, current Company stockholders will, as a general matter, have less influence over the management and policies of the Company following the contribution as compared to their influence over the Company prior to the contribution.