Watsonville, Calif.-based Granite Construction Inc. (NYSE: GVA) and The Woodlands, Texas-based Layne Christensen Co. (NASDAQ: LAYN) announced Feb. 14 that they have entered into a definitive agreement whereby Granite will acquire all of the outstanding shares of Layne in a stock-for-stock transaction valued at $565 million, including the assumption of net debt. The transaction, which was unanimously approved by the boards of directors of both companies, is expected to close in second-quarter 2018.

Under the terms of the agreement, Layne shareholders will receive a fixed exchange ratio of 0.270 Granite shares for each share of Layne common stock they own. This represents $17 per Layne share, or a premium of 33%, based on the volume-weighted average prices for Granite and Layne shares over the past 90 trading days. Following the close of the transaction, Layne shareholders will own approximately 12% of Granite shares on a fully diluted basis, and Granite's Board will be expanded to include one additional director from Layne. The transaction represents an enterprise value multiple of 8.2x 2018 expected EBITDA1.

As a leading water management, construction and drilling company with the No. 1 position in well drilling and No. 2 position in cured-in-place pipe (CIPP) rehabilitation, Layne significantly enhances Granite’s presence in the large and growing water infrastructure market. The combined company, including Granite's existing water business, will have water-related revenues of approximately $600 million, positioning Granite as a national leader across both the transportation and water infrastructure markets. Together, Granite and Layne will have nearly 7,000 employees and serve a diverse and growing customer base.

“This strategic transaction brings together two complementary organizations to create a platform for growth, delivering significant benefits for shareholders, employees, and customers,” said James H. Roberts, president and CEO of Granite. “With Layne’s expertise and leading water positions, Granite will advance its goal of becoming a full suite provider of construction and rehabilitation services for the water and wastewater market. With enhanced scale and capabilities, Granite will be better positioned to address the growing water and wastewater needs throughout the infrastructure lifecycle. We expect this transaction will create value for shareholders in both the near- and long-term, including earnings accretion on an adjusted basis and synergy realization. As a stronger player in the attractive water and wastewater sector, we will have significant opportunities to capture a larger share of the market and accelerate our growth prospects.”

“We are pleased to reach this agreement with Granite, which creates significant value for all Layne stakeholders,” said Michael J. Caliel, president and CEO of Layne. “Our organization believes that Granite is the right partner. This is a terrific opportunity as our shareholders will receive a significant premium and share in the upside potential in a diversified and growing company with greater scale and resources. Our customers will benefit from our shared commitment to operational excellence, quality, and customer service, and our employees will benefit from the upside and strong growth prospects of being part of a larger infrastructure company. Our leadership position in water resources combined with our increasing presence in the growing water midstream business should be greatly enhanced by our combination with Granite. The Layne team looks forward to working together with Granite to implement a seamless transition.”

Roberts added, “Together, Granite and Layne will provide expanded career opportunities as a larger, stronger, and more diversified company. Granite will also benefit from gaining the expertise and specialized skills of Layne employees as we expand our presence in water infrastructure. Importantly, we believe this combination unites two similar cultures that emphasize core values focused on ethics, safety, sustainability, and a commitment to the communities in which we work and live. We look forward to welcoming Layne's talented employees to Granite. Together, we can capitalize on attractive and growing market opportunities, given the expected increase in demand for large water infrastructure programs.”

Layne is a leading water management, infrastructure services and drilling company with a broad portfolio and a diverse and growing customer base across municipal, industrial, agriculture, and energy end markets, with water-related services accounting for over 80% of revenues. Together with Layne, Granite will be a leader in water infrastructure and wastewater rehabilitation, well positioned to take advantage of the attractive macro dynamics of the water services industry. The U.S. municipal utility sector is forecasted to spend $532 billion in capital expenditures through 2025, with over 50% of the spending expected to be related to water and wastewater distribution networks.

A combination with Layne represents the next logical step in the evolution of Granite’s strategy to diversify its service offerings by expanding in the water and wastewater market. Since acquiring Kenny Construction Co. in December 2012, which gave Granite an entrance into the water markets, Granite has made a number of investments in the water sector to strengthen its capabilities, expand its footprint and grow its presence. Now, with the addition of Layne’s leading portfolio of services, Granite will be better positioned in water infrastructure and wastewater rehabilitation.

Granite expects to assume outstanding Layne convertible debt with principal value of $170 million and honor the terms and existing maturity date provisions of the indentures. The transaction is not expected to trigger any change of control provisions under Layne’s indentures. Granite also expects to fund the cash financing requirements of the transaction of approximately $70 million through a combination of existing cash on hand and availability under Granite’s revolving credit facility. Following close, Granite will maintain an investment grade credit profile and significant financial flexibility.

In connection with the transaction, Granite will issue approximately 5.4 million shares of Granite common stock to Layne common stockholders.