• CV led by LSV Advisors to hold around 85% of PB Materials
• Around USD 150m new capital raised, including CV and around USD 55m term loan
• PB Materials recently launched frac sand operation

Industrials, chemicals and materials-focused sponsor BPGC Management (BPG) on 22 January announced the acquisition of a majority stake in aggregates business Permian Basin Materials (PB Materials) from funds managed by WL Ross & Co. Rather than an opening round, the deal marks the next chapter for BPG in an over-decade-long association with the Odessa, Texas-based company.

Stephen Toy, co-founder and managing partner of BPG, has been involved with PB Materials since WL Ross engineered its creation in 2014 through the simultaneous acquisition of three businesses. After establishing BPG – then known as Broadpeak Global – in 2020, alongside fellow WL Ross alumnus Nadim Qureshi, Toy continued to play a hands-on management role via a sub-advisory contract.

“This involved BPG dealing with the investment management,” Toy explained in an interview with Mergermarket. “We were very involved in the investment committee, capital allocation, and capital structure, while WL Ross handled middle and back-office functions such as accounting, finance, and legal.”

Now, under the new deal, a BPG-managed fund – anchored by secondary special situations investor LSV Advisors – will acquire an approximately 85% stake in PB Materials, effectively taking WL Ross out of the ownership equation. Toy describes the structure as a “quasi” continuation vehicle.

“The GP changed, but we have a history with the asset,” he added. “We gave all the investors from WL Ross and the minority investors the chance to roll over or cash out.”

Adjacent to this transaction, which was first reported by Mergermarket, PB Materials, is also refinancing its debt. In total, just over USD 150m in new capital is being raised, the majority in equity via the CV. The refinancing comprises a USD 55m term loan, led by Fortress Credit Corp, according to a source familiar with the situation. Hillcrest Bank is also providing committed debt financing, according to a press release.

Strategic rationale

PB Materials, which generates around USD 200m in annual revenue, claims to be one of the largest producers of sand and gravel aggregates and ready-mix concrete in West Texas and southeast New Mexico. BCGC started thinking about next steps for the business in late 2023. A formal sale process was quickly ruled out in internal conversations.

The company was still recovering from COVID-19, during which its infrastructure and construction end markets were hit hard, and there were other strategic opportunities to pursue. Notably, a potentially lucrative operation to produce frac sand, a key ingredient in oil-and-gas fracking, was still in the planning stage.

“We realized we owned some of the largest sand reserves in the Permian. We tested out our ability to use these in the oil field, and it worked,” said Toy. “A continuation vehicle made the most sense as investors who wanted to stay for the next stage of value creation could do so, and for those that felt it was time to wrap up, that was also fine.”

Moreover, BPG believes the region PB Materials operates in is set for a period of sustained growth, having reached a new phase in its development. A growing population has led to an uptick in construction and an upgrade in infrastructure. Spending by the Texas Department of Transportation reached USD 3.9bn in 2024, up from USD 250m in 2016.

“Fracking has gone through a similar transition to tech in the 1990s,” noted Toy. “There was an initial wave of unbridled enthusiasm, then a bust and shakeout, and then a stable period of more long-term growth.”

Deal timeline

The process kicked off in the first quarter of 2024 and progressed over the course of the year.

“We wanted to make sure everyone was comfortable with it,” said Sim Ketchum, a managing director in Houlihan Lokey’s directs and co-investments team, who served as capital markets advisor to BPG. “We had lots of diligence sessions with investors, while BPG worked closely with the LPAC [LP advisory committee] and had a third-party fairness opinion done.”

Ultimately, LSV Advisors emerged from a deep field of potential lead investors for the CV, which also included family offices, funds of funds, and asset managers, according to Ketchum.

Established in 2005 and based in New York, LSV makes investments in the USD 25m-USD 150m size range. Last year, it co-led a USD 415m multi-asset CV raised by Amberjack Capital Partners for energy services and industrial services companies.

The transaction is also notable for extending the GP-led secondary concept beyond blind pool funds and into direct investments. In this sense, the structure is a good fit for BPG, which typically operates on a deal-by-deal basis.

For example, in 2021 the sponsor acquired Dupont’s [NYSE:DD] cleantech business, Elessent as part of a consortium that also featured Asia Green Fund and the Saudi Arabian Industrial Investments Company (Dussur). The deal was funded by a mix of common and preferred equity from family offices, institutional investors and sovereign wealth funds, according to an announcement.

For PB Materials, it added elements of a CV to the mix, giving WL Ross and its investors the option to exit or stay on for the next chapter of growth. “It’s a similar sport,” said Ketchum, who also advised the sponsor on the Elessent carve-out while at Triago, which became part of Houlihan Lokey last year after a sale announced in late 2023.

Kirkland & Ellis and White & Case acted as legal advisors for the deal.