Company Makes Several Moves for Future Growth
Aegion Corp. on Jan. 4 announced several actions to deliver sustainable growth and address the market realities in the North American energy markets.
Following a recent assessment of its energy-related businesses, Aegion concluded the persistent low price of oil is expected to create market challenges for the foreseeable future and that the high-cost upstream oil markets it serves in California and Canada will be particularly difficult as customers further reduce expenditures in 2016.
In light of expectations for a prolonged low oil price environment, Aegion announced it will reduce its exposure in the North American upstream market by approximately $100 million in annual revenues through two specific actions.
First, Aegion has entered into a definitive agreement to sell its 51 percent interest in Bayou Perma-Pipe Canada Ltd., a pipe coatings company in Western Canada, to its joint venture partner MFRI Inc. for approximately $9 million. Aegion expects the transaction to close during the first quarter of 2016.
Second, the company will downsize Energy Services’ upstream operations in Central California due to reduced customer demand while continuing to support the remaining customers in the region with its high-quality services and industry leading safety programs.
The company also acquired Underground Solutions Inc., which is known for its fusible PVC products that are used in water, wastewater and conduit applications. Aegion has executed a definitive agreement to acquire Underground Solutions for $85 million in cash and expects to close the transaction during the first quarter of 2016.
Charles R. Gordon, Aegion’s president and CEO, said, “In today’s challenging business environment, we are continually evaluating our exposure to the end markets we serve. To that end, we announced an investment in our capabilities to rehabilitate pressure pipelines for water and wastewater applications by acquiring Underground Solutions Inc., an established provider of a patented fusible PVC technology.”
Several key members of Underground Solutions’ senior management, who average more than 20 years of industry experience, will join Aegion to form an expanded team dedicated to trenchless rehabilitation of existing pressure pipelines.
Underground Solutions’ patented fusible polyvinyl chloride products focus on the rehabilitation of pressure pipelines, primarily in North America. Underground Solutions uniquely complements Aegion’s Infrastructure Solutions platform that includes pressure pipe rehabilitation technologies InsituMain, InsituGuard and Tyfo/Fibrwrap and increases Aegion’s presence in the pressure pipe market to nearly $90 million in annual revenues.
“We are pleased to have Underground Solutions join Aegion,” Gordon commented. “Our market research suggests assembling a portfolio of technologies is the right strategy to establish a leading position in the North American pressure pipe rehabilitation market. We believe the combination of Underground Solutions’ patented PVC technologies with our Insituform and Tyfo/Fibrwrap technologies will allow us to strengthen our position in this attractive market by offering our customers a broader portfolio of solutions.”
In a separate action to continue the recent momentum in the Fyfe business, the company signed a definitive agreement with Fyfe Group LLC to acquire the legal rights to products, contract installation, intellectual property and licensing agreements in key international markets not previously purchased by Aegion for approximately $3 million. The transaction is expected to close during the first quarter of 2016 and will allow the company to expand third party product sales across 72 countries in Europe, Africa and the Middle East.
Aegion’s 2016 Outlook
As part of Aegion’s planning for 2016, Gordon announced the company would look to expand its services related to midstream and downstream pipeline services, as well as expand its offerings in other industries.
“As we look to 2016, Infrastructure Solutions remains focused on maintaining its leadership position by taking advantage of continuing favorable market conditions in North America,” Gordon said. “In addition, the acquisition of Underground Solutions is an important step to advance our stated strategic objective to expand our presence in the growing pressure pipe rehabilitation market in North America.
“In contrast, we expect 2016 will be a more difficult year for the North American energy markets, particularly related to upstream capital spending as customers continue to decrease investments in response to persistent low oil prices.
“Longer-term, we believe our diversified portfolio of technologies and services will deliver sustainable growth as we have repositioned our upstream oil exposure to reflect current market realities. The broader strategic initiatives we previously outlined should enhance growth by accessing new markets to rehabilitate water pressure pipelines, enable more effective pipeline asset integrity management in the growing midstream market and offer higher-margin services through strong customer relationships in the West Coast downstream refining market.”