Advanced Drainage Systems acquires OTPP’s Infiltrator Water Technologies for US $1.08B

CPE Media News (8/1/2019) – Advanced Drainage Systems, Inc. (NYSE: WMS) (ADS) has acquired Infiltrator Water Technologies, LLC from an affiliate of the Ontario Teachers’ Pension Plan (OTPP) and other stockholders for US $1.08 billion.

Hilliard, Ohio based Advanced Drainage Systems is a leading global manufacturer of water management products and solutions for commercial, residential, infrastructure and agricultural applications.

Old Saybrook, Connecticut based Infiltrator is a leading national provider of plastic leach field chambers and systems, septic tanks and accessories, primarily for use in residential applications.

The acquisition will build on ADS’ core strengths in water management by combining Infiltrator’s leading position in on-site septic wastewater management with ADS’ core stormwater-focused platform, said Advanced Drainage Systems.

In May 2015, Ontario Teachers’ acquired Infiltrator Water Technologies, previously known as Infiltrator Systems, from Graham Partners for reportedly US $530 million.

photo credit: Infiltrator Water Technologies

News Release

Advanced Drainage Systems Acquires Infiltrator Water Technologies From Ontario Teachers’ Pension Plan

08/01/2019

Builds on ADS’ existing water management solutions platform
Expands addressable opportunity into the attractive on-site septic business
Enhances sales growth, margins and cash flow generation
Aligns with ADS’ core growth strategies and commitment to innovation
Combines best-in-class polypropylene and polyethylene recycling capabilities

HILLIARD, Ohio–(BUSINESS WIRE)– Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a leading global manufacturer of water management products and solutions for commercial, residential, infrastructure and agricultural applications, today announced the acquisition of Infiltrator Water Technologies, a leader in on-site septic wastewater treatment for a purchase price of approximately $1.08 billion, from an affiliate of the Ontario Teachers’ Pension Plan and other stockholders.

“We are very excited to be joining forces with Infiltrator, a company we know well and have worked with over the years as one of our longstanding strategic partners,” said Scott Barbour, President and CEO of ADS. “Infiltrator is a natural fit for us and for our customers, aligning closely with our growth strategies while accelerating the key drivers of our three-year plan—sales growth, margin expansion and cash flow generation—that we announced at our Investor Day last year. This acquisition will allow us to offer an enhanced suite of water management solutions to a broader set of customers and expand our addressable opportunity in the attractive and related on-site septic business. We are excited to execute on best practices across our businesses, particularly in innovation, operational excellence, and recycling capabilities. We look forward to working with the Infiltrator team to continue building on both companies’ strengths, as leaders in providing water management solutions for our customers.”

“This acquisition is a welcomed extension of our more than 15-year partnership built on mutual admiration and respect. We have always shared a similar vision and core values, executed comparable conversion strategies to displace traditional materials, and remained committed to developing innovative, best-in-class products while maintaining a dedication to safety, operational excellence and sustainability through our recycling activities,” said Roy Moore, President and CEO of Infiltrator Water Technologies. “We have appreciated our partnership with Ontario Teachers’ Pension Plan over the past four years, as we have executed against our value creation initiatives and are well-positioned for continued growth.”

Combination Benefits

Infiltrator is a leading national provider of plastic leach field chambers and systems, septic tanks and accessories, primarily for use in residential applications. Infiltrator products are used in on-site water treatment systems in the U.S. and Canada and generated approximately $275 million in revenue and $89 million in adjusted EBITDA during 2018. Infiltrator has been a longstanding supplier and customer of ADS for over 15 years.

This acquisition builds on ADS’ core strengths in water management by combining Infiltrator’s leading position in on-site septic wastewater management with ADS’ core stormwater-focused platform. This extends ADS’ addressable opportunity into the attractive and related on-site septic business. The on-site septic business shares similar conversion dynamics to ADS’ core stormwater business, with plastic septic chambers and tanks gaining share faster than traditional products.

The acquisition aligns with ADS’ core growth strategy, combining two companies with similar models, driving share gains with conversion from traditional materials. Both companies are leaders in their industries, have strong distribution networks and highly technical sales and engineering teams. The acquisition will add to the combined company’s distribution networks and increase availability of products to customers.

Lastly, the transaction brings together two companies committed to creating innovative water management solutions that preserve one of the planet’s most precious resource with a shared commitment to safety, operational excellence and sustainability. Infiltrator also brings significant recycled raw material sourcing capabilities, in both polypropylene and polyethylene, with 75% of their collective products sourced from recycled resin, which equates to approximately 150 million pounds of recycled plastic annually.

Transaction Details

Under the terms of the agreement, ADS paid a purchase price of approximately $1.08 billion, subject to various closing and post-closing adjustments. The Company has initially funded the transaction with drawings under a Senior Secured Credit Facility arranged by Barclays and Morgan Stanley Senior Funding, Inc. The Company expects to refinance the Senior Secured Credit Facility through a combination of opportunistic capital markets transactions. ADS intends to utilize the strength of the combined cash flows to reduce leverage quickly and ultimately intends to return to its long-term target leverage of less than 3.0x within eighteen months. On a pro forma basis for the Company’s fiscal year ended March 31, 2019, the combined companies would have had revenues of approximately $1.6 billion, Adjusted EBITDA margins of approximately 20.4% and free cash flow conversion of nearly 50%. ADS’ management anticipates that this acquisition will be accretive to Adjusted EBITDA in year one, accretive to EPS in the first full year and yield approximately $20-$25 million in run-rate synergies by year three.

Barclays and Morgan Stanley & Co. LLC acted as financial advisors to the Company and Squire Patton Boggs acted as legal advisor to the company and Davis Polk acted as legal advisor to the ADS board of directors. RBC Capital Markets LLC and Deutsche Bank Securities, Inc. acted as financial advisors and Kirkland & Ellis acted as legal advisor to the Ontario Teachers’ Pension Plan.

About the Company

Advanced Drainage Systems is the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace. Its innovative products are used across a broad range of end markets and applications, including non-residential, residential, agriculture and infrastructure applications. The Company has established a leading position in many of these end markets by leveraging its national sales and distribution platform, overall product breadth and scale and manufacturing excellence. Founded in 1966, the Company operates a global network of approximately 55 manufacturing plants and over 30 distribution centers. To learn more about ADS, please visit the Company’s website at www.ads-pipe.com.

About Infiltrator Water Technologies

Infiltrator Water Technologies is a leading manufacturer of products for the water and wastewater industries. For over 30 years, the company has been manufacturing a variety of innovative and environmentally friendly alternatives to traditional pipe and stone leach field and concrete septic wastewater components. The company sells its products through wholesale distribution across the United States and Canada, for use on properties with on-site wastewater treatment systems. Infiltrator is a leader in the use of post-consumer and post-industrial recycled plastics in the manufacturing of its products. To learn more about Infiltrator, please visit the company’s website at www.infiltrator.com/about.

About Ontario Teachers’ Pension Plan

The Ontario Teachers’ Pension Plan is Canada’s largest single-profession pension plan, with $191.1 billion in net assets at December 31, 2018. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house and has earned an annual total-fund net return of 9.7% since the plan’s founding in 1990. Ontario Teachers’ is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East and Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario’s 327,000 active and retired teachers. For more information, visit otpp.com.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). ADS management uses non-GAAP measures in its analysis of its own performance.

Reconciliation of Non-GAAP Financial Measures

This press release includes references to Adjusted EBITDA, a non-GAAP financial measure. This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP. These measures are not intended to be substitutes for those reported in accordance with GAAP. Adjusted EBITDA may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures.

EBITDA and Adjusted EBITDA are non-GAAP financial measures that comprise net income before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. The Company’s definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and the Company’s board of directors to assess financial performance and evaluate the effectiveness of the Company’s business strategies. Accordingly, management believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as the Company’s management and board of directors. In order to provide investors with a meaningful reconciliation, the Company has provided below reconciliations of Adjusted EBITDA to historical net income for IWT.

The table below presents a reconciliation of IWT’s historical net income to Adjusted EBITDA:

The table below presents a pro forma combined reconciliation of ADS’s and IWT’s historical net income to Adjusted EBITDA for the twelve months ended March 31, 2019.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190801005226/en/

Investors / Media
Advanced Drainage Systems
Michael Higgins
Vice President, Corporate Strategy & Investor Relations
614-658-0050

Source: Advanced Drainage Systems, Inc.

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