Granite Construction Acquires Kenny Construction Co.

Granite Construction Inc. (NYSE: GVA) announced Dec. 28, that it has signed a definitive agreement to acquire Kenny Construction Co., a national contractor and construction manager specializing in the trenchless power, tunnel, water and civil markets, for $130 million.

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Founded in 1927, Kenny is a privately-owned, Northbrook, Ill.-based company with approximately 425 employees. Kenny offers a comprehensive range of services related to power transmission and distribution, construction management, tunnels, trenchless and underground utilitie — specializing in cured-in-place, large-diameter pipe liner — and heavy-civil infrastructure. Kenny’s revenues are projected to be $270 million for 2012, with approximately 50 percent of revenues associated with the power sector, 20 percent associated with tunneling-related work and 30 percent coming from water/underground and other heavy/civil related work. As of Dec.31, 2012, Kenny’s backlog is projected to be approximately $390 million.

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“This acquisition is an important milestone for Granite as we continue to execute on our strategic plan to diversify, strengthen and grow our business,” said Granite president and CEO James H. Roberts. “The addition of Kenny’s expertise in the power, tunnel and underground markets will significantly expand our presence in these key areas as well as enable us to leverage our capabilities and geographic footprint to take advantage of opportunities across the country.”

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Under the terms of the definitive agreement, Granite will pay the purchase price of $130 million in cash at closing in exchange for 100 percent of the outstanding shares of Kenny. The purchase price is subject to adjustment for certain items, including any outstanding Kenny indebtedness. Granite will receive a tax “step up” in the assets of Kenny and its subsidiaries that is expected to provide future tax benefits to Granite. These benefits imply an effective purchase price of 5.0x Kenny’s projected 2012 EBITDA.

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Granite intends to finance the transaction through a combination of cash and available borrowings under its existing revolving credit facility. The transaction has been closed in escrow, effective on Dec. 31, 2012. One-time costs related to the acquisition of Kenny are estimated to be approximately $5 million and will be recorded in the fourth quarter 2012.

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Including integration costs and the impact of intangible amortization, the transaction is expected to be break-even to Granite’s 2013 earnings per share. Excluding intangible asset amortization, the transaction would be immediately accretive. These projections are based on preliminary estimates of the allocation of purchase price intangible assets. The final allocation will be determined after closing.

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BofA Merrill Lynch is acting as financial advisor to Granite in connection with the transaction. FMI Corporation is acting as financial advisor to Kenny.

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About Granite

Granite is one of the nation’s leading infrastructure contractors and is member of the S&P 400 Midcap Index, the FTSE KLD 400 Social Index and the Russell 2000 Index. Through its wholly owned subsidiary, Granite is one of the nation’s largest diversified heavy civil contractors and construction materials producers serving public- and private-sector clients nationwide. In addition, Granite has one of the oldest and most robust ethics and compliance programs in the industry. The company has been recognized by the Ethisphere Institute as one of the World’s Most Ethical Companies for the third year in a row.

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