Moving On

• By Sabrina Barker
• Mar 01, 2002

The impact of the September 11, 2001, terrorist attacks continues to be felt across broad swaths of the U.S. economy, and the environmental services arena is no exception. Although a general softening in the economy was becoming fairly evident earlier in the year, 9/11 had a very distinct way of emphasizing and accelerating these incipient weaknesses. Although some environmental firms have found new types of work as a result of the disaster -- cleanup work, ambient air and water testing, anthrax testing, and so on as well as heightened security concerns about the nation's water supplies, most environmental companies are experiencing an uncertain time.

In terms of merger and acquisition activity, investment banking firms note a distinct downturn in the level of activity, as many companies pull back and institute a slower and more cautious approach to doing deals. However, there have been a few major transactions in the environmental industry during the fourth quarter of 2001, and as usual, numerous transactions continue at the smaller level.

MACTEC Moves Up

Probably the most significant transaction in the engineering and consulting side came with Denver-based MACTEC's latest deal - the acquisition of Law Engineering of Atlanta, Ga. MACTEC, whose acquisitions over the last three years have included Environmental Science and Engineering, Pacific Environmental Services and Harding Lawson Associates, added about $200 million in annual revenues when it announced its intent to acquire all of the stock of Law, which only earlier last year divested its internationally-oriented Gibb unit. The deal is contingent upon a new round of financing for privately-held MACTEC, but the company reports that it expects the deal to be closed early in the new year. If completed, the Law deal will push MACTEC over the $500 million level and position it as one of the largest players in the industry. Chief Executive Officer Scott State predicts MACTEC will be company to reach the $1 billion level within the next few years.

Danaher and TRC Continue Down Acquisition Paths

Perhaps the most aggressive acquirer in the broad environmental industry these days is Danaher Corp. -- not a familiar name to many in the environmental industry, but a firm that is gradually becoming the undisputed giant in the environmental instrumentation and process control field. Danaher has acquired literally dozens of firms in this area over the past several years, with some of the best-known names including Sigma, Hach and Veeder-Root.

In my last column, I mentioned Danaher's ongoing attempt to buy its archrival in the tool-making sector - Cooper Industries. During this latest quarter, the firm announced the signing of the final purchase agreement to pick up Marconi Systems on December 20, 2001, for $325 million. This business, formerly known as Gilbarco, will complement Danaher's existing Veeder-Root business in integration automation and environmental solutions for retail petroleum businesses.

At about the same time, Danaher also announced the widely-anticipated purchase of the Viridor Instrumentation group from Pennon Group (formerly South West Water) of the United Kingdom. In this deal, Danaher paid what appeared to be a huge premium for the business, estimated at almost two times annual revenues and more than 15 times operating cash flow. Viridor consisted of several individual instrumentation assets and businesses, which South West had acquired during the mid and late 1990s, including HydroLab of Austin, Texas - a field water monitoring equipment manufacturer; Great Lakes Instruments, a U.S. field equipment company, Orbisphere of Switzerland and several other small instrumentation and process control firms.

On perhaps a slightly smaller scale, TRC continues to be a very active and aggressive acquirer in the environmental services business, and during the past several months has announced a number of diversifying transactions. Perhaps most significant amongst TRC's recent deals was its acquisition of SITE-Blauvelt, a leading east-coast transportation infrastructure firm. SITE brought approximately $40 million of additional revenue to TRC, as well as a 60-year operating history and a strong network of transportation industry contacts and relationships in the mid-Atlantic and Southeast area states. Other recent TRC deals include Engineering Automation Systems Inc., a California company providing mechanical, electrical and energy consulting services; ECON Corp., a Texas risk management firm; and two other Texas-area infrastructure consulting firms. At press time, TRC announced the acquisition of E/PRO, a New England firm involved in power infrastructure facilities - a recent spin-off of Central Maine Power Company. The firm also raised $15 million through a private offering to Fletcher Asset Management, a private equity group of New York.

Smaller Deals Persist

Earth Tech continues to be an active buyer, particularly in the international markets, recently announcing the acquisition of two environmental consulting companies in Mexico and a water/wastewater consulting company in Ireland. In September the firm also acquired Talisman Partners, a small Colorado-based management consulting firm that focused on budgeting and investment planning for engineering and construction firms. Jacobs picked up two Canadian firms - McDermott Engineers and Constructors and Delta Hudson, both of Calgary, Alberta. McLaren-Hart traded hands again, with ENSR buying up several offices of the firm, which had only very recently been bought by Charlotte-based J.A. Jones, a unit of the troubled German giant, Philipp Holzmann.

Smaller deals abound, although they are typically among companies that are less widely known and hence do not receive as much attention in the industry press. As a few examples - the Keith Companies of California acquired Pacific Engineering Corp. of Portland, Org., expanding Keith's position in the energy industry. Fugro West, a unit of the major Dutch environmental consultant, acquired Subsurface Consultants Inc. of Oakland, Calif. Consolidated Engineering of Virginia picked up Viox Services of Ohio - a major facility maintenance and management firm. ATI Architects of Danville, Calif., acquired Associated Professions Inc. to add more surveying capabilities to its resume.

On the Waterfront

As we mentioned in our last column, water deals continue. Ionics completed the sale of its Aqua-Cool bottled water business to Nestle S.A. In an interesting reversal of many recent transactions, the city of Indianapolis bought back its water company from the utility company NiSource for $515 million. NiSource was required to sell as part of an order with the SEC involving other recent merger and acquisition activity. Elsewhere, Enron put the rest of its Azurix holdings - including the British water utility Wessex Water - on the block, as the parent company abruptly tanked, in one of the largest and most dramatic business failures in U.S. history.

The Bad News

And there were other downside stories. The IT Group - one of the most significant acquirers in the environmental industry during the past several years - has finally admitted that it is on verge of bankruptcy. International Technology was one of the earliest players in the waste management industry, growing from a small family-owned, ship-cleaning business in Los Angeles in the 1960s, to a leading player in the hazardous waste management, engineering and remediation businesses. Although IT fell on some hard times in the early 1990s, an investment and financial backing by the prominent Washington D.C.-based Carlyle Group injected new funds and energy into the company in the mid-1990s. During the following years, IT consolidated together many of the leading names in the industry - firms such as OHM Corp., EMCON and more than a dozen others. However, the lack of a clear market strategy, poor integration of acquired companies and interest charges on the debt incurred to complete its high-priced acquisition spree, had weakened IT considerably in recent years. The firm's financial condition became worse during the past two years; its CEO announced his resignation late in the year, and the firm announced the possibility of a Chapter 11 bankruptcy filing soon thereafter.

ATG, once a leading provider of low-level radioactive waste treatment services, moved towards delisting on the NASDAQ stock exchange in late November 2001 and then filed for Chapter 11 bankruptcy protection on December 4, 2001. The company said that its basic technology was sound, but that it had been forced to file for protection as a result of the freezing of its assets by its primary lending bank.

This article originally appeared in the March 2002 issue of Environmental Protection, Vol. 13, No. 3, p. 16.

This article originally appeared in the 03/01/2002 issue of Environmental Protection.