Merger Opens Layne to the Future

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If these two companies were on Match.com, each would be looking at the other’s profile as the best suitor.

It just made sense. Two companies that share a similar business philosophy and desire to grow in the water and wastewater industry — Layne Christensen Co., a public engineering and construction firm with a global presence, and Reynolds Inc., a privately held utility construction contractor in the United States. It was a union that was meant to be.

Layne purchased Reynolds in September 2005 for $112.2 million, a deal that doubled its business in the water and wastewater market. Last year, Reynolds posted more than $175 million in revenues. That additional financial influx has helped Layne become a $520 million a year company.

The move not only added more revenue for Layne, but it opened the door to new services and products for its customers, providing a more complete offering in the water and wastewater market.

Layne specializes in water well drilling, water treatment technology, mineral exploration, geo-technical drilling and energy supply. Never before had the company delved into the wastewater, pipeline construction or trenchless rehabilitation markets. Reynolds fit like a missing piece of the puzzle.

The acquisition brought ownership of Reynolds’ Inliner Technologies, one of the largest U.S. suppliers of cured-in-place pipe (CIPP), as well as a strong foundation in wastewater construction and trenchless methodologies.

Reynolds not only brings the CIPP capabilities, but also horizontal directional drilling (HDD), auger boring and microtunneling, among other trenchless technologies.

What led to the acquisition was a strong professional relationship between Layne Water Resource Division president Greg Aluce and Reynolds president Jeff Reynolds, the grandson of the company founder. The two had worked together on joint-venture projects in the past and had come to respect each other.

The Reynolds organization will partner with Layne’s Water Resources and Geo Construction groups to form the new Water and Infrastructure Division, which Jeff Reynolds now manages as executive vice president of Layne. The company’s Water Resource Group was already one of its largest segments, making up approximately $200 million in revenues. However, most of that business dealt with water supply and treatment facilities.

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“My vision was to go downstream with the products and services we offer our customers,” says Aluce, explaining that Reynolds allows Layne to go beyond its well and treatment services and expand into pipeline services. “It’s allowing us to get to where I want [the business]to go a lot faster. It allows us to bulk up and be able to convey these services, products and offerings a lot more quickly than us building it organically.”

The combination of services allows Layne and Reynolds to offer a fuller spectrum of services, Aluce says. One of the most significant areas that Reynolds helps Layne is with the design-build delivery of pipeline and larger treatment facility projects.

“What we bring to [Layne] is more construction capability, but further the wastewater side,” Jeff Reynolds says. “Layne didn’t have any market in the wastewater side of things.”

Before, Layne was focused on groundwater, Aluce says. Wastewater services complete the water cycle of services. Layne’s strengths lay in sourcing water, such as locating, development, installing facilities and treatment. The addition of Reynolds allows for conveying the water, repairing pipelines and constructing wastewater facilities. Together, the companies provide the gamut of water usage service — from the ground to the communities and back to the source.

The acquisition was mutually beneficial, Jeff Reynolds says. As Reynolds provides Layne with a broader range of services and a new product line for its customers, Layne provides more geographic presence for Reynolds.

A New World
Since the September acquisition, it has been business as usual. Reynolds still operates under its same moniker, only now as “a Layne Christensen company.” As part of Layne, Reynolds’ services are now situated to expand across the United States more conveniently — and rapidly.

Even though Layne purchased Reynolds, Jeff Reynolds considers the deal a merger in the truest sense of the word: the two companies’ services combine to form one. It’s not that Reynolds has now become a bigger fish in the pond. The pond has become more accessible.

Reynolds has been a national utility contractor since the 1930s. The firm had seven fixed offices situated in the Midwest and Southeast United States. Layne, on the other hand, has more than 35 offices with management in place throughout the United States alone — not to mention its international offices — making it more practical for growth into other markets.

However, Reynolds will proceed carefully as the company expands. It will analyze which areas present the best opportunity for growth.

“We want to move into a market that clearly has a need for our presence,” Jeff Reynolds says. “When we find that market, Layne will likely already have an office there. That makes it more convenient for us to make the transition.”
Those additional offices, and an increased access to capital, will allow Reynolds services to expand at a faster clip, Aluce says.

“Anywhere we have operations and a base to work from,” he says, “that will add and help accelerate the growth of services we have to offer.”

For both new construction and rehabilitation work, Jeff Reynolds views the Southwest as an area for “enormous potential” because of the region’s population growth. “Where the people are moving, they will need water,” he says. “And wherever they need water, they will need wastewater dealt with.” And while there is plenty of new construction opportunities, the Southwest also has areas with aging infrastructures that could require attention in the future.

However, Aluce says that the companies must work strategically.

“We don’t want to dilute the capabilities that we have,” he says. It doesn’t make sense, Aluce says, to take resources away from one area of the country — and lose money — just in the hopes of making money in another region of the country.

Growth of water services will likely be limited to the U.S. market. Although Layne has offices all over the globe, its water services are focused 100 percent on the United States, says Aluce, though he did not bar the possibility of international projects with particularly “intriguing aspects.”

Fitting In
During the past six months, representatives from both Layne and Reynolds have been working to integrate both companies. Because both had similar “customer-first” business principles, the transition has been smooth, according to Jeff Reynolds, who says the companies have been in the midst of a best-practices study of the operations.

The companies must bring its employees up to speed on all the services now provided, Aluce says.

One area that has taken a lot of attention is Reynolds’ equipment assets, Aluce says. Maintenance practices, repair facilities, purchasing and other general fleet issues have become a focal point of Layne employees.

“Once our guys took a little bite of it, they really liked it,” Aluce says. “We’re tending to overload them in that area a little bit. Our plans are to centralize our rebuild facilities and our maintenance facilities.”

Company officials have been surprised with how well the two companies fit together. Aluce attributes that success to the cultural similarities between Layne and Reynolds. The fact that both have roots in the drilling industry made that connection almost automatic. The way the two companies complement each other is what helped make the deal so attractive, Aluce says.

“The numbers could be the best and most optimistic and financially sound,” he says. “But if the chemistry between the people is not there, it’s very hard to make any type of deal work.”

Getting used to operating as a public company has been a little overwhelming, Jeff Reynolds says. As a privately held company, Reynolds didn’t have to worry as much about financial reporting practices — it’s taken a little getting use to, he says.

Although Layne and Reynolds are looking at ways to improve the companies’ various operations, such as accounting, computer systems, communications and human resources, Jeff Reynolds says, the focus is on serving the customer.Because it all boils down to meeting the customers’ needs.

“Whatever we do, in the end, it has to work,” Jeff Reynolds says. “When we get done [with a project], we have to make sure it meets or exceeds the customer’s expectations.”

And Reynolds’ strategy for understanding those expectations?

“Ask,” Jeff Reynolds says. It’s that simple. His goal is to build a sustaining relationship with his clients.

“Ultimately, I’m looking for that customer to want me back again,” he says. “I’m looking to establish a relationship that I can work for that customer for the rest of my life.”

That philosophy is the backbone of both companies, Aluce says. Being able to offer customers a full range of services from well to wastewater treatment and everywhere in between is one way to build those long lasting relationships.

Flowing Like Water
The acquisition of Reynolds almost immediately helped Layne post a 24 percent jump in third-quarter profits. The company is now one of the biggest suppliers of water and wastewater services.

“As a result of this merger, we feel Layne Christensen has the most complete offering of products and services of any major company in the water and wastewater industry,” Layne Christensen president and CEO Andrew Schmitt says. “We anticipate excellent growth prospects in these business lines.”
As company officials are confident that the market will continue to grow during the next 20 years, Jeff Reynolds says, “The synergies created by the combined companies will accelerate that growth.”

The reason for the growth, Reynolds says, is because of a better understanding that infrastructure is important to bettering a community’s livelihood.

“There’s a growing recognition and acceptance by the public of the need to invest money in our infrastructure,” he says. “I think people used to think water is free or ought to be. I think they’re getting the idea that we have to protect our water supply, and we have to invest the necessary amount of money to do so.

“Nothing survives without water.”

Bradley Kramer is assistant editor of Trenchless Technology.

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