Quanta Services (PWR) M&A announcement summary

Deal rationale and strategic fit

• Stronghold adds a downstream and midstream specialty-services platform, complementing existing midstream capabilities and extending services across energy customers’ CapEx and OpEx needs.

• Cultural fit includes shared safety focus, operational excellence and customer service; Stronghold brings an experienced management team and an ~2,800-person skilled workforce.

• The acquisition broadens industrial services and creates a combined infrastructure offering intended to capture more energy-sector spending and strengthen customer solutions.

Financial terms and conditions

• Acquired July 20, 2017, for ~$450 million upfront: ~$360 million cash and 2.7 million shares valued at ~$90 million; cash funded with credit-facility borrowings.

• Additional cash-and-stock earn-out of up to $100 million depends on cumulative three-year EBITDA through mid-2020; current-year transaction multiple was ~8x.

• Stronghold generated ~$500 million revenue in 2016, with high-single-digit operating margins; 2017 post-acquisition revenue estimated at $240–$260 million.

• 2017 adjusted diluted EPS contribution estimated at $0.06–$0.07 and GAAP diluted EPS accretion at $0.02–$0.03; 2018 estimates were $575–$600 million revenue and $0.10–$0.15 adjusted EPS accretion.

Synergies and expected cost savings

• Forecasts exclude operational synergies; management cited cross-selling across complementary customer bases and opportunities to extend tank, maintenance, engineering and EPC services.

• Management expects EPS accretion to increase in 2018 without operational synergies; potential cross-selling remains unquantified upside.