US Ecology Inc. has entered into a definitive merger agreement with NRC Group Holdings Corp. (NRCG), a national leader in environmental, compliance and waste management services to the marine and rail transportation, general industrial and energy industries, in an all-stock transaction with an enterprise value of $966 million.
The transaction, which is expected to close in the fourth quarter of 2019, aims to create one nationwide leader in industrial and hazardous waste management services and is projected to be mid-single-digit accretive to US Ecology’s 2020 adjusted earnings per share, before synergies.
“The addition of NRCG’s substantial service network strengthens and expands US Ecology’s suite of environmental services,” said Jeffrey R. Feeler, president, CEO and chairman of US Ecology, in a statement. “This transaction will establish US Ecology as a leader in standby and emergency response services and adds a new waste vertical in oil and gas exploration and production landfill disposal to further drive waste volumes throughout the Gulf region.”
NRCG is one of two leading national Oil Spill Removal Organizations (OSRO) that provide mandated standby emergency response for the transportation of oil products. With more than 50 service centers, NRCG has a national service network providing emergency and spill response, light industrial services, hazardous and industrial waste management and transportation services. From a growing base of disposal assets in the two key oil basins in the Gulf region, the Permian and the Eagle Ford, NRCG provides landfill disposal of waste from oil and gas drilling, treatment and handling of residual waste streams and rental and transportation services to support its disposal operations.
“NRCG will bring highly complementary services and customers to US Ecology and will position the combined company as a leading player in industrial waste management while strengthening its position in the overall environmental services market,” said Christian T. Swinbank, president and CEO of NRCG, in a statement. “We believe the combination will provide compelling upside for stockholders of both companies.”
The transaction has been approved by both companies’ Boards of Directors. Upon completion of the transaction, US Ecology stockholders will own approximately 70 percent of the combined company, and NRCG stockholders will own approximately 30 percent on a fully diluted basis. The combined company will use the US Ecology name, and its shares will continue to be listed on the Nasdaq Global Select Market under the ticker ECOL.
Feeler will continue to serve as president, CEO and Board of Directors chairman. The company will maintain its headquarters in Boise, Idaho, with regional support centers in Boise, Detroit, New York and Houston.
Strategic benefits of the merger include:
- Expanding leadership in specialty and industrial waste services. The merger supports US Ecology’s vision of becoming the premier provider of comprehensive environmental services by adding high-quality landfill disposal assets, a complementary new oil and gas exploration and production waste stream and an expanding scale of key service verticals that drive volume to US Ecology’s fixed facilities.
- Establishing a leadership position in marine- and land-based emergency response, including a premier standby network. As a nationally recognized OSRO, NRCG generates a recurring, compliance-driven revenue stream, with upside from spill events and international expansion, particularly in Mexico and Canada. The acquisition adds more than 50 additional service sites that provide emergency response, “light” industrial services and waste handling to drive recurring base business through US Ecology’s national service network.
- Providing National Service Network, which is consistent with US Ecology’s growth strategy. The addition of more than 50 service sites will provide a platform to support other field services offered by US Ecology, including retail compliance, lab pack and less than truckload waste transportation.
- Providing significant opportunities for synergies, with return on invested capital projected to exceed the cost of capital in the first full year. According to the companies, this is a highly accretive transaction with synergies of approximately $20 million and potential for upside through realization of additional revenue and cross-selling opportunities.
- Drawing upon the collective talents of both companies. The combination of US Ecology and NRCG is intended to create a “best-of-breed enterprise that will harness the experience and expertise of each organization to ensure that customers benefit fully from their complementary capabilities.”
NRCG’s pro forma revenue and adjusted EBITDA, as reported, were approximately $389 million and $91 million, respectively, for the year ending December 31, 2018, which includes pro forma adjustments for its 2018 acquisitions. NRCG is expected to contribute approximately $120 million to US Ecology’s adjusted EBITDA in the first full year following the combination and be accretive in the mid-single digits to US Ecology’s 2020 adjusted earnings per share, before synergies. Adjusted EPS excludes transaction, integration and other nonrecurring expenses.
Under the terms of the merger agreement, US Ecology will form a new holding company that will take the name of US Ecology, Inc. immediately upon the closing of the transaction and will own both US Ecology and NRCG.
US Ecology stockholders will receive one share of common stock of the new holding company for each share of US Ecology common stock they own upon closing of the transaction. NRCG common stockholders will receive 0.196 shares of common stock of the new holding company for each share of NRCG common stock they own upon closing of the transaction. The exchange ratio represents a price of $12 per share of NRCG stock, based on the US Ecology average share price over the last 15 trading days. The $12 price per share represents a premium of approximately 36 percent to NRCG’s June 21, 2019, closing price of $8.83.
Each share of NRCG’s 7 percent Series A Convertible Cumulative Preferred Stock is expected to be converted in the merger into approximately 1.8 common shares of the new holding company. NRCG’s 19.249 million outstanding Warrants to purchase NRCG common stock will be converted to 3.773 million Warrants to purchase common stock of the new holding company, with a strike price of $58.67 each.
The transaction will provide NRCG stockholders with continued participation in the future prospects expected to result from the combination through their ownership of approximately 30 percent of the stock of the new holding company, on a fully diluted basis.