Energy Services of America has bought a water and sewer contractor in its home state. The Huntington, W.Va., contractor said Oct. 23 that its subsidiary, FAMCO Acquisition, Inc., completed the purchase of substantially all the operating assets of FAMCO, Inc., a West Virginia utility contractor focused on water and sewer infrastructure, for a base price of $6.95 million, subject to adjustments.
The deal closed two weeks later than planned. When Energy Services announced the agreement Oct. 1, it expected to close on or about Oct. 9. It didn’t explain the gap.
How the FAMCO acquisition is paid for
The structure leans on stock for a deal this size. Under terms disclosed in the company’s Oct. 1 8-K filing, three-eighths of the price, about $2.6 million, is paid in cash at closing. Half, about $3.5 million, is paid in Energy Services common stock, to be issued as soon as possible after closing. The last eighth, roughly $870,000, is held back for a post-closing true-up.
Paying the seller in shares ties part of the price to how the combined company performs. It also saves cash for a contractor whose results depend heavily on weather, as its spring quarter showed.
Energy Services said FAMCO brings an experienced workforce, an equipment fleet, customer relationships and contract backlog in water and sewer work. It didn’t disclose FAMCO’s revenue, headcount or backlog. FAMCO “brings experienced people, equipment and customer relationships,” President Douglas Reynolds said.
Water work is a bigger part of the Energy Services pitch
Energy Services employs more than 1,400 people and works mainly in the mid-Atlantic and Central U.S. for natural gas, petroleum, water distribution, automotive, chemical and power customers. In its fiscal third quarter ended June 30, revenue rose 25.5% to $130.0 million and net income climbed to $3.3 million from $2.1 million. Gross margin slipped to 11.0% from 11.6%, which the company tied to one large gas transmission job. Reynolds said favorable spring weather let projects start on or ahead of schedule.
He also pointed to “the ongoing replacement cycle for water infrastructure” as a growth driver, alongside power demand and data centers. Backlog was $286.6 million on June 30, down from $325.1 million at March 31 but up from $280.7 million a year earlier.
Small contractor deals keep closing
FAMCO is a tuck-in. It’s a sliver of the money moving through Southern contractor deals like Cardinal Infrastructure’s $357.5 million agreement for Hughes Brothers. But it buys crews, equipment and water utility relationships, the pieces that take longest to build from scratch.
Measured against the June backlog, the purchase price comes to about 2.4%.