Dallas-based Arcosa Inc., announced Thursday that it has agreed to purchase the construction materials business of Stavola Holding Corporation and its affiliated entities for $1.2 billion.
The deal, Arcosa’s largest in a string of recent acquisitions, is backed by a $1.2 billion bridge loan secured by Arcosa, along with a backstop to its existing $600 million revolving credit facility. The company says it intends to tap long-term credit debt capital markets for more permanent financing sometime before a fourth quarter closing.
The announcement also included a separate divestiture of Arcosa’s steel components business to New York-headquartered Stellex Capital Management, signaling a move by Arcosa towards a core-business focus on aggregates and building materials.
Stavola has been a provider of aggregates and other building materials primarily in the markets of New York and New Jersey since 1948. For the 12 months ended June 30, Stavola generated $283 million and an adjusted EBITDA of $100 million. The structure of the transaction is expected to yield an estimated $125 million in net tax benefits to Arcosa.
Barclays and Evercore served as financial advisors to Arcosa. J.P. Morgan, Bank of America Securities and Barclays have provided committed financing. A team from Kirkland & Ellis, led by Dallas partner Kevin Crews and Houston partner Jennifer Gasser, counseled Arcosa on the acquisition. Baker Botts advised on the financing.
For Kirkland, in addition to Crews and Glasser, the rest of the deal team includes environmental transactions partner Jonathan Kidwell in Dallas; tax partner David Wheat in Dallas; labor & employment partner Christie Alcala in Houston; real estate partner Joshua Faulkner in Chicago; antitrust and competition partners Michael Thorpe in Chicago and Elyse Dorsey in Washington, D.C.; capital markets partners Jennifer Wu and leuan List, both in Austin; and technology & IP transactions partner Dan Lewis in Chicago.
The Baker Botts team was led by a group of Dallas-based partners: Luke Weedon, Samantha Crispin and Sarah J. Dodson. They were assisted by Dallas associates Brittany Simington, Steven Langert, Tala Esmaili and Maddie Boezinger.
The Stavola acquisition, Arcosa’s first in the New York-New Jersey MSA is part of its long-term strategy to expand its footprint to grow in a variety of attractive economic regions in an effort to reduce the cyclicality of a business vital to the infrastructure sector.
Said Antonio Carrillo, Arcosa president and CEO: “The acquisition of Stavola accelerates Arcosa’s strategic transformation by adding a premier aggregates-led platform in the nation’s largest MSA with favorable attributes from its exposure to lower volatility infrastructure-led end-markets.”
It’s also the fourth such acquisition led by Kirkland’s Crews. He previously led Arcosa’s acquisitions of Strata Materials in 2020 (its entry into Dallas market), Southwest Rock Products in 2021 (its entry into Arizona market) and Recycled Aggregate Materials Co. in 2022 (its entry into California market).
Arcosa’s steel components business, based in Pennsylvania and operating under as McConway & Torley, Standard Forged Products, and McKees Rock Forgings, produces rail, mining and other products for the infrastructure market. LTM revenues were $150 million. Terms of the agreement were undisclosed.
Gibson Dunn & Crutcher advised Arcosa on the steel unit divestiture with a team led from Dallas by partners Robert Little and Joe Orien and includes associates Uyen Tu and Mason Gauch. Partner Chad Nichols is advising on financing. Partner Michael Cannon and associates Josiah Bethards and Emily Risher Brooks are advising on tax aspects. Partner Krista Hanvey and associate Gina Hancock are advising on benefits. Partner Daniel Angel and associates Libby Pica and Andrew Hartman are advising on IP aspects. Partners Michael Murphy and Rachel Levick are advising on environmental aspects. Of counsel Lesley Davis and associate Alexander Robinson are advising on real estate aspects. Associates Audi Syarief and Anna Searcey are advising on international trade aspects.
Carrillo said the structure of the deal should not be a burden on shareholders. “We have committed financing in place to fund the purchase of Stavola that will result in initial net leverage above our targeted range. Our permanent financing strategy will allow for rapid deleveraging at an attractive cost of capital. Based on the anticipated strength of our cash flow generation, our goal is to return to our long-term net leverage targeted range within 18 months,” he said.
“We believe these portfolio actions underscore our commitment to increasing long-term shareholder value and our disciplined approach to capital allocation. We look forward to welcoming the Stavola team and customer base to Arcosa, and express our gratitude to the employees of our steel components business for their dedication and contributions to Arcosa.”