Acquisition in US
Weir Group in $1.28 billion swoop on Oregon-based ESCO
Good start: Jon Stanton,Weir Group CEO
Weir Group, the Scotland-headquartered engineering company, is acquiring US-based ESCO Corporation in a $1.28 billion recommended deal.
The Glasgow business has also announced that it is putting its Bellshill-based Flow Control business up for sale.
The equity value of the ESCO deal is $1.05bn and the enterprise value (debt and equity) $1.285bn.
ESCO is the global market leader in highly-engineered tools used in surface mining and construction and is headquartered in Portland, Oregon.
Last year it delivered revenues of $632m and a pro forma adjusted Ebitda of $68m.
Weir said the proceeds of selling Flow Control will be used to further reduce debt and to fund investment in the company’s core platforms. The current assumption is that proceeds would not be received before 2019.
The company will fund the cash component of the deal through a placing of up to 16,699,763 shares to institutional investors which represents up to approximately 7.4% of the existing issued ordinary share capital.
The placing is being conducted through an accelerated bookbuild process. Goldman Sachs International and UBS are acting as joint global coordinators and joint bookrunners.
Weir also announced that first quarter orders were 22% higher than in the corresponding period last year.
Oil & Gas orders are 50% driven by pressure pumping demand in North American shale, and minerals by 13%.
Jon Stanton, chief executive, said: “The group performed strongly in the first quarter, outperforming its main markets through an intense focus on helping its customers meet their operating goals in improving conditions.
“In mining, our largest market, our 2017 investment in sales and engineering capability enabled us to provide more solutions to miners focused on increasing productivity from their current assets.
“In Oil & Gas, shale continued to demonstrate its increased relevance with record North American production supported by our leading technology pressure pumping products and services. Flow Control benefited from operational improvements and encouraging momentum in its main markets.
“Our good start to the year reflects our anticipated progress at this stage of 2018 and our full year outlook of strong constant currency revenue and profit growth remains unchanged.”
Philip Barker, partner & head of industrials at Cavendish Corporate Finance, said: “Weir Group’s acquisition of ESCO Corp is a smart move to capitalise on the all-time high oil and natural gas production in the US.
“Through the acquisition, Weir will increase its exposure to a market that is estimated to reach $116.12 billion by 2018 and bring ESCO’s advanced technology that allows drillers to free hydrocarbons from shale rock formations under its management, helping to strengthen its foothold in the US.
“This deal is another example of growing US-bound M&A activity by UK businesses looking to take advantage of strong GDP growth, demonstrating growing confidence in the US economy. As such, we expect this activity to continue, certainly in the short-medium term.”