Diversified global industrial scaffolding specialist Harsco Corp. this week announced an agreement to sell its Infrastructure Division into a joint venture with Clayton, Dubilier & Rice in a transaction that will combine the division with Brand Energy & Infrastructure Services, which CD&R is simultaneously acquiring from First Reserve. The combined company, which will continue under the name Brand Energy & Infrastructure Services, will be a single-source provider of specialized industrial services to the worldwide energy and infrastructure sectors. Harsco will receive cash proceeds of about $300 million and a 29-percent equity stake in the combined company, which has an enterprise value of about $2.5 billion.
The deal, upon closing, will strengthen Harsco’s balance sheet and enable it to reallocate capital to higher-return opportunities. Harsco expects the transaction to improve margins and be immediately accretive to earnings in the first year. Harsco believes there are a number of organic growth and bolt-on acquisition opportunities to generate improved returns.
The equity stake Harsco will receive is valued at about $225 million, valuing Harsco’s Infrastructure division at $525 million.
The transaction, unanimously approved by Harsco’s board of directors, is expected to close before the end of the year, subject to customary closing conditions and regulatory approvals.
Pro forma 2013 annual revenues for the combined Brand Energy & Infrastructure Services are estimated at close to $3 billion. About two-thirds of the combined company’s revenues are expected to be generated from the energy sector, with a significant level of recurring revenue driven by required maintenance work.
Paul Wood, current chairman and CEO of Brand, will continue to serve in this role in the combined company. The company will be headquartered in suburban Atlanta, Brand’s current headquarters.
“We believe that the combined company has a well-positioned global platform, very favorable growth prospects and a deep set of capabilities to serve customers across its diverse end markets,” said Nathan Sleeper, a CD&R partner.
“The integration with Harsco Infrastructure directly aligns with our company’s strategy to expand our specialty service offering,” said Wood. “The combination of these two groups of strong local operating companies and management teams creates a true global leader in both specialized industrial services, and forming and shoring. The resulting global footprint will enable us to offer best-in-class operating capabilities to our customers in the growing energy and infrastructure markets.”
CD&R is no stranger to the construction equipment or equipment rental industry. In the fall of 2005, CD&R acquired Hertz Corp., including Hertz Equipment Rental Corp. from Ford. In July 2007 the investment group purchased HD Supply Corp. from Home Depot. CD&R acquired $20.1 million in Hertz stock in July 2009, again becoming Hertz’ largest shareholder. It has since divested some of its Hertz investment.