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Primoris (PRIM) to Acquire Willbros, Boost MSA Revenues

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Primoris Services Corporation (PRIM - Free Report) recently entered into a definitive merger agreement to acquire Willbros Group, Inc. — a specialty energy infrastructure contractor — for an enterprise value of about $100 million. The buyout will strengthen Primoris’ business and boost revenues as well as profitability.

About Willbros

Headquartered in Houston, TX, Willbros serves the oil & gas and power industries through three operating segments — Utility Transmission and Distribution (“UTD”), Oil & Gas and Canada. The company’s infrastructure services platform provides a diverse base of utility, natural gas, and renewable customers with comprehensive engineering, construction, maintenance, repair, along with restoration solutions.

Details of the Buyout

Primoris will pay 60 cents per share to buy all outstanding shares of Willbros and will settle existing debt obligations. Primoris will provide up to $20 million of bridge financing to Willbros to support its working capital requirements until the closure of the deal. Primoris intends to finance the transaction through cash and existing credit facilities. The acquisition is expected to close during the second quarter of 2018.

 

In connection with the execution of the definitive agreement, certain directors and stockholders of Willbros, holding approximately 17% of the outstanding shares, entered into voting agreements with Primoris. They have agreed to vote in favor of the transaction.

Post the acquisition, Willbros UTD business will become a new operating segment — Primoris UTD. The segment will continue to work on the company’s strategic plan for growing its Master Service Agreement (“MSA”) revenue base. Further, Willbros' Lineal Oil & Gas operations will be incorporated into Primoris' Utilities & Distribution segment. The Houston-based Oil & Gas facilities operations will become part of Primoris' Pipeline & Underground segment, and the Canadian business will become part of Primoris' Power, Industrial and Engineering segment.

Multiple Benefits to Primoris

This acquisition will provide the much-needed boost to Primoris' recurring revenues and MSA backlog. Notably, the Willbros acquisition will be accretive to Primoris’ revenues by approximately $660 million, including estimated UTD revenues of $470 million in the first year after the closing of the transaction. The buyout will also add EBITDA of $25 million, total backlog of $400 million and around $7 million annual cost savings in the first year. Further, Primoris will record annual cost savings in the range of $7.5-$10 million within 24-30 months after the buyout.

Moreover, the inclusion of Willbros UTD business and its electric-focused solutions will fortify Primoris’ natural gas utility service offerings. In addition, Willbros’ oil field services group and the Canadian and Lineal business units are expected to drive Primoris’ growth in the near term.

MSAs as a Catalyst

MSAs will provide Primoris a baseline revenue stream while pursuing additional avenues of growth.  In sync with this, the company recently announced the extension of a MSA with a projected value of $40 million. The contract was secured by ARB Underground, part of the Primoris’ Utilities & Distribution segment.

The company expects that the large diameter pipeline market will sustain the positive trends in 2018 and into the next several years which will aid growth.  It will also gain from renewable power, small diameter pipeline, industrial and mid-scale EPC projects in 2018.  

Price Performance

In the past year, Primoris has outperformed the industry to which it belongs to. The company’s shares have gained around 7.4% against the industry’s decline of around 2.8%.



Zacks Rank & Other Key Picks

Primoris carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the same space include KB Home (KBH - Free Report) and EMCOR Group, Inc. (EME - Free Report) . While KB Home sports a Zacks Rank #1 (Strong Buy), EMCOR carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Home has a long-term earnings growth rate of 16%. The company’s shares have rallied 38.7% over the past year.

EMCOR has a long-term earnings growth rate of 15%. The company’s shares have returned 20.5% in a year’s time.

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