Intertek agrees to acquire PSI for $330 million

14 Oct 2015

Strategic expansion in US growth markets

Intertek Group plc ("Intertek" and the "Group"), a leading quality solutions provider to industries worldwide, announces that it has entered into an agreement to acquire Professional Service Industries, Inc. ("PSI"), for a cash consideration of US$330 million on a cash-free and debt-free basis1, which is equivalent to a 7.6x multiple based on adjusted2 LTM EBITDA of US$43 million for the 12 months to 31 August 2015.

PSI is a leading US based provider of testing and assurance services to commercial and civil construction markets, with a broad service offering including building materials testing; geotechnical services; and property and environmental assurance.

Founded in 1961 and headquartered in Illinois, PSI employs approximately 2,400 people at 87 locations across the US and provides a full spectrum of services to a diverse, customer base nationwide. PSI is currently majority owned by the private equity firm Olympus Partners.

Transaction highlights:

• Acquisition of a leading, high-quality US commercial and civil construction material testing and assurance business
  
  
• Combination of Intertek's Building business with PSI's construction portfolio creates an industry leading testing and assurance service offering
  
  
• Builds scale in the US construction market, which has significant growth potential
  
  
• Significant revenue and cost synergies will contribute to attractive financial returns
  
  
• Expected to be EPS accretive from the first full year of ownership and to contribute meaningfully to the Group's growth and margin profile going forward
  
  

Compelling strategic rationale:

The acquisition of PSI is in line with Intertek's strategy to expand its presence in attractive markets with long-term growth opportunities. PSI has leading positions in US commercial and civil construction markets. It offers a broad range of testing and assurance services related to the construction of non-residential buildings (including manufacturing plants, office buildings and hospitals) and non-building structures such as bridges and motorways, both sectors with strong growth prospects. PSI has a highly diversified customer base in strategic end markets, underpinned by a large group of loyal customers.

PSI's service offering is highly complementary to Intertek's existing activities. Together, PSI's and Intertek's Building business will offer a nationwide testing and assurance service portfolio across the project and building lifecycle - significantly increasing the Group's addressable market. The transaction builds on Intertek's successful acquisition of Architectural Testing Inc. (ATI) in 2013 and will provide Intertek with the capabilities and broader geographical presence required to pursue further expansion.

PSI is also a recognised provider of non-destructive pipeline infrastructure testing ("NDT") services to customers in the attractive mid-stream pipeline market, which is expected to benefit from the expansion of the US oil and gas pipeline network. Whilst only 23% of PSI's revenue in 2014, its NDT business will complement and strengthen Intertek's existing US based Industry Services business.

PSI is a high quality operator with strong capabilities, which include award-winning technology. PSI's management has a proven track record of consistent performance and superior customer service.

PSI's construction business will join Intertek's Commercial & Electrical division, while its NDT activities will join Intertek's Industry & Assurance division. Its strong management team will remain with the business.

Strong financial rationale:

In its audited accounts for the year ended 31 December 2014, PSI reported revenue of US$254 million, adjusted2 EBITDA of US$40 million and adjusted2 operating profit of US$29 million.

Intertek expects the acquisition to deliver attractive returns to shareholders as PSI has attractive revenue growth prospects, scope for meaningful margin improvement and is strongly cash generative. Synergies are anticipated to add c.300bps to PSI's operating margins by the third full year of ownership. Intertek expects the acquisition will be EPS accretive in the first full year after acquisition.

Intertek will finance this acquisition using available debt facilities. Following this acquisition, Intertek's net debt should represent around 1.8x EBITDA at the 2015 fiscal year end.

The transaction is subject to customary conditions and is expected to be completed during December 2015.

André Lacroix, Chief Executive Officer of Intertek, commented:

"The acquisition of PSI will expand Intertek's presence in adjacent US growth markets. By combining Intertek's Building business with PSI's construction activities, we will offer our customers an industry-leading portfolio of testing and assurance services.

The demand for construction and building testing and assurance services will continue to grow driven by the strengthening US economy, and we will be uniquely positioned to capture an increased demand for higher quality commercial buildings and public infrastructure. In the NDT business, greater demand for pipelines as a safer and more cost effective means of transportation will drive additional investment that Intertek will benefit from.

The acquisition of PSI will build on the strong growth momentum in our Building business and on the successful acquisition of Architectural Testing Inc. (ATI) in 2013. This acquisition is in line with our strategy of acquiring complementary businesses that deliver attractive financial returns.

PSI is an excellent business with a strong track record of service delivery and we are delighted to welcome the PSI team to Intertek. We look forward to providing our customers with a greater level of assurance and convenience as we broaden our portfolio of services and expand our geographic footprint".

Conference call

Chief Executive Officer, André Lacroix and Chief Financial Officer, Edward Leigh, will host a live audiocast for analysts and investors today, 14 October, at 8am UK.

Call dial in numbers:

Standard International Access: +44 (0) 20 3003 2666
UK Toll Free: +44 (0) 80 8109 0700
Reference: Intertek announcement

These details can also be found at https://www.intertek.com/investors/ together with presentation slides and a copy of this announcement. A recording of the audiocast will be available later in the day.

Enquiries

Investor Relations
Telephone: +44 (0) 20 7396 3400 investor@intertek.com

Media
Telephone: +44 (0) 20 3727 1340 richard.mountain@fticonsulting.com

About Intertek

Intertek is a leading quality solutions provider to industries worldwide. From auditing and inspection, to testing, training, advisory, quality assurance and certification, Intertek adds value for its customers by improving the quality and safety of their products, assets and processes.

With a network of more than 1,000 laboratories and offices and over 38,000 people in more than 100 countries, Intertek supports companies' success in a global marketplace, by helping customers to meet end users' expectations for safety, sustainability, performance, integrity and desirability in virtually any market worldwide.

Intertek Group plc (LSE:ITRK) is listed on the London Stock Exchange. Visit www.intertek.com.

Financial Adviser

Greenhill & Co. International LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as financial adviser to Intertek and no one else in connection with the proposed transaction and will not be responsible to anyone other than Intertek for providing the protections afforded to clients of Greenhill & Co. International LLP nor for providing advice in relation to the proposed transaction or any other matters referred to herein.

Important notices

1. Subject to customary closing adjustments.
   
   
2. Adjusted for minor non-recurring items.
   
   
3. In its audited accounts for the year ended 31 December 2014, PSI's gross assets were US$373 million and its net assets were US$115 million.

Certain information included herein, such as financial estimates, projections and forecasts, contains forward-looking statements which involve risk and uncertainty, such as business, economic and regulatory changes, which could cause actual results to differ materially from such estimates, projections and forecasts. No representation or warranty is given as to the achievement or reasonableness of any forward-looking statements discussed in this document. This document is delivered as at the date specified.