Northwest Pipe Acquires Ameron Water Transmission In Opportunistic Deal
Summary
- Northwest Pipe announced that it has acquired Ameron Water Transmission for $38.3 million in cash.
- Ameron provides a range of water and wastewater pipe products for infrastructure and other industries globally.
- NWPX appears to be acquiring Ameron at a bargain price; assuming prompt integration, the deal should be strong win as NWPX prepares for higher market demand.
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Quick Take
Northwest Pipe Company (NASDAQ:NWPX) announced it has acquired the Ameron Water Transmission Group from National Oilwell Varco (NOV) for $38.3 million.
Ameron Water Transmission produces concrete and steel pipe systems in the United States, Mexico, Canada, and Central and South America.
NWPX will hope to do better with the deal than National Oilwell did, at least by paying a tiny fraction of NOV's acquisition price for an entity that should fit well into its operations.
Target Company
The Rancho Cucamonga, California-based former division of National Oilwell Varco (NOV) provides a range of steel, fiberglass-composite and concrete pipes for water and wastewater conveyance purposes in North America, Central and South America.
National Oilwell acquired Ameron in 2011 for $777 million, so it appears the acquisition performed poorly for NOV in its seven years of ownership.
The firm posted $57 million in sales in 2017 and has facilities in California and Mexico.
Ameron has customers in the industries of chemical, industrial, energy infrastructure and transportation markets.
Market & Competition
According to a 2014 market research report by Freedonia, the water and wastewater pipe market will grow 7.7% per year to $18.1 billion in 2018.
According to another report, by Bluefield Research, investments in this sector will grow roughly from $12 billion in 2017 to $14 billion in 2026.
The main drivers for this expected growth are the increase in construction activity and the ongoing need for renewal of the US sewage system.
Major competitive vendors that provide water and wastewater pipes include:
- JM Eagle
- Pipelife
- North American Pipe
- Advanced Drainage Systems (WMS)
- American Cast Iron Pipe
Acquisition Terms and Rationale
NWPX disclosed the acquisition price as $38.3 million paid from cash on hand.
Management didn't disclose a change in financial guidance in the deal announcement.
A review of NWPX' most recent 10-Q indicates that as of March 31, 2018, the firm had approximately $40 million in cash on hand and $23.5 million in total liabilities.
NWPX acquired Ameron at what is likely an opportunistic price, given that seller National Oilwell had purchased the company seven years ago for $777 million.
As NWPX CEO Scott Montross stated in the deal announcement,
The acquisition of Ameron is the next step in our multi-year transformation to grow our business into a pure-play water company, by building upon our strengths as an industry leader and consolidating two companies with proud histories in the water transmission business.
In the past 12 months, NWPX’s stock price has risen by 26.7% or roughly double that of the S&P 500 Index, as the chart below indicates:
(Source: SEEKING ALPHA)
For NWPX, the deal represents a significant acquisition. Ameron promises to both broaden NWPX' operational footprint and product line offerings.
These expanded offerings can be folded into NWPX's existing sales force; likewise, NWPX's offerings can be sold through Ameron's sales force and any redundancies eliminated in the post-close activity.
Management has scheduled a conference call for its quarterly earnings and acquisition details.
NWPX investors will likely need to wait at least a few quarters before they see the fruits of this acquisition. Operations will need to be streamlined and sales teams trained with new products before the combined entity can re-accelerate in the market.
However, it appears that management has acquired a significant entity at a bargain price, so downsides to investors seem limited in my view.
I'm bullish on NWPX's future prospects and agree with management that the deal will help it 'meet the increased demand we expect in our markets in the next few years.'
This article was written by
I'm the founder of IPO Edge on Seeking Alpha, a research service for investors interested in IPOs on US markets. Subscribers receive access to my proprietary research, valuation, data, commentary, opinions, and chat on U.S. IPOs. Join now to get an insider's 'edge' on new issues coming to market, both before and after the IPO. Start with a 14-day Free Trial.
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