DALLAS - Infrastructure products provider Arcosa , Inc. (NYSE: NYSE:ACA) announced a definitive agreement to acquire Stavola Holding Corporation's construction materials business for $1.2 billion in cash. The move is part of a strategy to grow in attractive markets and reduce business complexity and cyclicality through strategic acquisitions and divestitures. Stavola, known for its aggregates-led construction materials, serves the New York-New Jersey Metropolitan Statistical Area with a network of quarries and asphalt plants.
The acquisition is expected to generate revenues of $283 million and Adjusted EBITDA of $100 million for the last twelve months ended June 30, 2024. This reflects a 35% Adjusted EBITDA Margin, with the aggregates business contributing 56% to Stavola’s Adjusted EBITDA. The transaction also includes tax benefits for Arcosa with an estimated net present value of approximately $125 million.
The purchase is set to extend Arcosa's footprint into the nation's largest MSA and is consistent with the company's vision to expand its Construction Products business. Post-acquisition, Construction Products will represent 65% of Arcosa's Adjusted EBITDA, with a consolidated margin expansion of about 220 basis points.
In addition to the acquisition, Arcosa has entered into a definitive agreement to divest its steel components business to Stellex Capital Management LLC and has completed the sale of other non-core assets for a total consideration of $137 million. The divestitures are aimed at reducing exposure to cyclical markets and improving margins.
The financing for the Stavola purchase includes $1.2 billion of committed secured bridge loan financing and a backstop to Arcosa's existing $600 million revolving credit facility. Prior to closing the transaction, Arcosa plans to access the long-term debt capital markets for permanent financing.
In other recent news, Arcosa has seen significant developments in its financial outlook. The company's first quarter results for 2024 exceeded expectations, driven by solid organic growth and strategic acquisitions. Arcosa reported a 9% increase in total revenue compared to the previous year, along with considerable adjusted EBITDA growth and improved margins. The acquisition of Ameron Pole Products for $180 million is expected to further boost revenue and adjusted EBITDA throughout the year.
Additionally, DA Davidson has maintained a positive outlook on Arcosa, raising the price target to $110 from the previous $105, based on anticipated EBITDA growth, especially in the company's Engineered Structures segment. This follows a series of meetings with Arcosa's management, leading to an update in the firm's estimates.
InvestingPro Insights
As Arcosa, Inc. (NYSE: ACA) pursues its growth strategy with the acquisition of Stavola Holding Corporation's construction materials business, it's noteworthy to consider the company's financial health and market performance. With a market capitalization of $4.38 billion, Arcosa stands as a significant player in the infrastructure products sector. The company's price-to-earnings (P/E) ratio as of the last twelve months leading up to Q1 2024 is 34.07, indicating a high earnings multiple which suggests investors have high expectations of future earnings growth.
InvestingPro Tips highlight that Arcosa operates with a moderate level of debt, which is an encouraging sign for stakeholders as it implies a lower risk of financial distress. Additionally, the company's liquid assets surpass short-term obligations, providing Arcosa with a comfortable liquidity cushion to support ongoing operations and strategic initiatives like the Stavola acquisition.
From a performance standpoint, Arcosa has demonstrated strong returns, with a 15.11% price total return over the last month and an even more impressive 21.68% over the last three months. These robust returns reflect investor confidence and could potentially be a harbinger of sustained positive momentum post-acquisition.
For investors seeking a more in-depth analysis, there are more InvestingPro Tips available, offering a comprehensive view of Arcosa's financial and market position. These additional insights can be accessed through the InvestingPro platform, providing valuable information for making informed investment decisions.
Overall, with analysts predicting profitability for the year and a track record of profitability over the last twelve months, Arcosa's financials align well with its strategic moves to enhance shareholder value and solidify its market presence in the construction products sector.
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