Quanta Services acquires infrastructure solutions company

By Quanta Services | July 25, 2017

Quanta Services Inc. has completed the acquisition of Stronghold Ltd. and Stronghold Specialty Ltd., a leading specialized services company that provides high pressure and critical path solutions to the downstream and midstream energy markets.

Headquartered in La Porte, Texas, Stronghold has a strong presence in the strategically important Gulf Coast refinery and petrochemical market and serves nearly all regions of the United States. The company has achieved strong organic growth by leveraging its operational excellence to expand into ten distinct specialty services companies, each providing platforms for future growth. Stronghold generated revenues of approximately $500 million for the full year of 2016 and has a workforce averaging approximately 2,800 employees. The industrial services market is a natural service line expansion for Quanta, further enabling Quanta to meet energy customers' needs. Stronghold's operations will be reflected in Quanta's Oil and Gas Infrastructure services segment.

"We remain positive on our 2017 and multiyear outlook and believe Stronghold is a strategic acquisition that will allow us to capture a greater portion of the energy industry operating and capital spend," said Duke Austin, president and CEO of Quanta Services. "With positive industry dynamics, visible cross-selling opportunities and Quanta's support, we believe there is a multiyear opportunity for Stronghold's operations to achieve double digit growth. Stronghold's recurring revenues, accretive operating income margin profile and strong free cash flow generation align well with our strategic imperatives for long-term profitable growth. Stronghold is led by a multigenerational, experienced and well respected management team and, importantly, has a world-class, industry leading safety record. We welcome all of Stronghold's employees to the Quanta family."

The transaction consideration consists of an upfront payment of approximately $450 million, comprised of $360 million of cash and 2.7 million shares of Quanta Services common stock valued at approximately $90 million, with a cash and stock earnout that could provide maximum additional consideration of $100 million if cumulative three-year EBITDA targets are achieved. For the remainder of 2017, the acquisition of Stronghold is expected to generate $6.0 million to $7.5 million of net income attributable to common stock and to be accretive to Quanta's GAAP diluted earnings per share attributable to common stock by $0.02 to $0.03 and to non-GAAP adjusted diluted earnings per share attributable to common stock by $0.06 to $0.07, with accretion expected to increase in 2018. Adjusted diluted earnings per share attributable to common stock is calculated by adjusting net income attributable to common stock to account for, all net of tax, $3.0 million to $4.0 million of acquisition and integration costs, $2.0 million to $2.5 million of amortization expense associated with Stronghold's intangible assets and approximately $0.5 million of non-cash stock-based compensation expense. The allocation of the purchase price is preliminary and subject to change.

"Quanta is an ideal cultural and strategic fit for Stronghold, and we are excited to join the Quanta family," said Joe Durham, CEO of Stronghold. "Both companies are committed to safety, our employees and our customers, which provide the foundation for success. Joining Quanta will provide significant resources to Stronghold as we look to build on our history of profitable growth and meet the growing needs of our customers in the years ahead."

Stronghold's existing management team will remain in place, with founder Joe Durham continuing in his leadership role as CEO of Stronghold. With a skilled, dedicated and high-quality workforce, Stronghold will serve as a platform operating unit of Quanta.

Harris Williams & Co. served as financial advisor and Baker Botts L.L.P. served as legal advisor to Quanta for the transaction.

About Quanta Services
Quanta Services is a leading specialized contracting services company, delivering infrastructure solutions for the electric power, oil and gas and communications industries. Quanta's comprehensive services include designing, installing, repairing and maintaining energy and communications infrastructure. With operations throughout the United States, Canada, Latin America, Australia and select other international markets, Quanta has the manpower, resources and expertise to safely complete projects that are local, regional, national or international in scope.

About Stronghold
Stronghold is a leading specialized infrastructure solutions company that provides high pressure and critical path solutions to the downstream and midstream energy markets, through ten distinct specialty services companies. Headquartered in La Porte, Texas, with an average of 2,800 employees, Stronghold is committed to developing solutions that support customers' success through safe and effective project execution. The Stronghold group of companies are Cat-Spec Ltd., Citadel Industrial Services Ltd., Dorado Specialty Services Ltd., Elite Fabrication Ltd., Elite Piping & Civil Ltd., Elite Turnaround Specialists Ltd., Specialty Tank Services Ltd., Stronghold Inspection Ltd., Stronghold Tower Group Ltd. and Turnkey I&E Ltd.