US Ecology: NRC Group Acquisition Looks Fair

Jun. 25, 2019 5:31 PM ETRepublic Services, Inc. (RSG), NRCG10 Comments


  • US Ecology and NRC Group are merging to create a near $1 billion environment service business.
  • The deal makes sense, yet investors do not seem very happy with the transaction.
  • This disconnect, lower share price and improved earnings, makes it an interesting case to keep watching.
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US Ecology (ECOL) and NRC Group (NYSEMKT:NRCG) have agreed to combine their operations in an attempt to gain greater scale. The deal makes sense on paper as a larger and more diversified environmental service player should be able to extract synergies, while the all-stock deal should make the deal accretive, given that NRC trades at a lower multiple, and synergies can be realised. Nonetheless, investors are not yet convinced. In fact, shares of US Ecology have dipped quite a bit, making this an interesting story to watch going forward.

Deal Terms

US Ecology has reached a deal with NRC Group Holdings to combine operations. US Ecology provides environmental service to commercial and government entities and focuses on complex waste management needs, which includes hazardous and non-hazardous waste, as well as radioactive waste. NRC Group provides environmental, compliance and waste management services, notably in marine, rail transportation, general industry and energy segment.

The all-stock deal values NRC at $966 million as the transaction is set to create a nationwide leader in industrial and hazardous waste management services. Upon closure, current holders of US Ecology will hold about 70% of the shares, with NRCG shareholders holding the remainder of the shares. The company is furthermore pleased with the potential of the oil spill removal services offered by NRCG, being only one of two national organisations which provide such emergency response.

Besides scale (read synergies) and broader services, US Ecology believes the deal will be accretive to adjusted earnings in 2020 to the tune of mid-single digits. That does not seem to be much accretion, but remember that this will be an all-stock deal. Accretion has to come from estimated synergies of $20 million a year, with upside coming from revenues and cross-selling synergies.

Pro Forma Impact

In February of this year, US Ecology

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