Oil and gas equipment manufacturer Graham Corporation has acquired US nuclear equipment supplier Energy Steel & Supply Co for $18 million.
Energy Steel, with expected revenue of approximately $17 million to $19 million in 2010, offers an array of original equipment and integrated solutions as well as spare parts for nuclear power installations, both inside the reactor vessel and outside the containment vessel. Energy Steel’s solutions include pump refurbishment, desuperheaters, heat exchangers, vessels, and various valves, fittings, filters and piping. Energy Steel also provides services such as code welding, testing, engineering, and on-site support.
James R. Lines, Graham’s President and Chief Executive Officer, commented, “Energy Steel has been dedicated to the highly regulated and scrutinized nuclear power industry for nearly thirty years. We intend to leverage their industry knowledge and strong customer relationships in order to expand Graham’s presence in the nuclear market and intend to pursue Graham’s necessary accreditations to complement Energy Steel’s existing stamps.”
Lisa Rice, Energy Steel’s President, stated, “We believe this combination will benefit our customers by joining our well-respected quality processes with Graham’s design engineering and production resources. I also believe that it opens up growth opportunities for Energy Steel. We have grown nearly 60% in the last four years and believe that with the larger resource base Graham provides, we have significantly more potential in the existing power plant market, with the planned new nuclear power facilities in the U.S., and particularly in the international markets where Graham has a well-established reputation for quality engineering solutions, product reliability and responsive customer service.”
Lines said: “Energy Steel is an ideal complement to the Graham brand. It is a high-quality, custom fabricator offering specialized solutions to the nuclear industry and has a strong reputation for providing superior customer service. Acquiring Energy Steel is a logical step in broadening Graham’s offerings to the energy markets and strengthening our presence in the nuclear sector in particular, which we consider an important growth market. I believe that the acquisition is an excellent strategic fit for us as it achieves our goals of growing through market and product diversification while reducing the cyclicality inherent in the oil and petrochemical industry. Energy Steel has been successful in its growth by taking market share within existing nuclear power plants. We expect that there is excellent future potential in leveraging Energy Steel’s nuclear capability with Graham’s engineering expertise in the expanding utility nuclear power base.”
An additional purchase consideration of up to $2.0 million may be paid by Graham if Energy Steel exceeds profitability targets in calendar years 2011 and 2012. In addition, Graham entered into a long-term lease of Energy Steel’s Lapeer manufacturing facility with an option to purchase. No debt was acquired in the transaction. Graham had $70.8 million in cash and equivalents and no debt at the end of its second quarter of fiscal 2011, which ended September 30, 2010. Graham expects third quarter transaction costs associated with the acquisition of approximately $0.07 to $0.09, net of tax, per diluted share. The transaction is expected to be earnings-neutral in the fourth quarter of fiscal 2011 and accretive to earnings in fiscal 2012.
Rice will remain as Energy Steel’s President, with responsibility for its operations and growth plans. She has a nearly twenty-year career with Energy Steel, including the last seven as owner. Energy Steel was founded in 1982 and is located in Lapeer, Michigan. It has 52 employees, all of whom are expected to remain with the Company.
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