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Weir announces $1.285m acquisition of ESCO Corporation

Weir has entered into a binding agreement to acquire ESCO Corporation, a US company based in Portland, Oregon, for an equity value of $1.051 million and an estimated enterprise value of $1.285 million.

ESCO is the global market leader in highly engineered GET for surface mining and construction, with ten manufacturing facilities, six foundries and 22 service and supply centres in 19 countries around the world, with its core strength in North America, representing 52% of its revenue. This compares with Weir's unrivalled global minerals equipment service network, with approximately 100 service centres delivering a presence close to every major mine site in the world. Operating in more than 42 countries covering all key regions, just 22% of Weir Minerals revenue comes from North America.

Leveraging Weir's global network will significantly increase the number of direct customer relationships available to ESCO. The ESCO business will also provide strong support for Weir’s growing comminution offering, with an extensive footprint and dealer network in North America representing a clear opportunity for Weir’s crusher portfolio.

ESCO will accelerate Weir's portfolio development through the expansion of Minerals aftermarket opportunities. The business designs and manufactures highly engineered GET used primarily in surface mining, with one-third of ESCO revenues from construction. ESCO’s GET includes cutting-edge wear parts such as teeth, shrouds, adaptors, blades and locking systems that are installed on the lip systems of mission-critical mining equipment. The business has chosen to focus on its core strengths in GET and has divested and exited several non-core activities in the last 5 years.

ESCO’s customers include the leading global mining companies with ESCO product installed on c.40% of large primary mover machines. ESCO GET typically last significantly longer than rival products and are easier to maintain and replace. The innovative Nemisys® lip system and Ultralok® mining tooth system are more reliable, improve wear life and reduce downtime.

ESCO is a 105-year-old family business that shares Weir’s values and priorities. It has achieved a leadership position by consistently delivering high-quality products to its customers, underpinned by innovation that has resulted in c.1,800 patents and the development of a world-class innovation centre in Portland. In the last three months, Weir has had extensive access to the ESCO leadership team, facilities and shareholders as part of a highly collaborative process. The equity consideration will enable ESCO shareholders to benefit from the success of the combined business, and the high quality and long-standing ESCO team will join Weir.

The acquisition has been approved by the Board of Directors of Weir and is not subject to Weir shareholder approval. The transaction is expected to complete in early Q3 2018.

Post-closing, Weir intends to run ESCO as a stand-alone business for the remainder of 2018. Cal Collins, the current Chairman and CEO of ESCO, will step down from his role after closing, and join the Board of The Weir Group PLC as a Non-Executive Director. ESCO will be led by Jon Owens, current President and COO, and will retain the current ESCO leadership team and, sales and supply chain structures. During this integration period, additional work will be done to identify the optimal operating model for the Weir Minerals business and ESCO going forward.

The Weir strategy is to prioritise opportunities for growth in minerals, oil and gas. This reflects supportive long-term fundamentals for these end markets and Weir's core strengths in highly abrasive aftermarket-intensive applications that require comprehensive global support.

Consistent with this prioritisation the Board of Weir will initiate a process to sell the Flow Control division. This process will focus on maximising value for shareholders, with all options to be considered and no fixed timetable. Proceeds will be used to further reduce leverage and to fund future investment in growth in its core platforms. The company’s current assumption is that proceeds would not be received before 2019

Commenting on the acquisition of ESCO and the announcement of the intention to sell the Flow Control division, Weir Group CEO Jon Stanton said: “Today we are announcing an important development of our portfolio as we focus on building on our core strengths in minerals, oil and gas. With ESCO we’ll be joined by a world-class team and add another leading global brand. Together, Weir Minerals and ESCO will create a unique customer proposition as the premium provider of mission-critical surface mining solutions from extraction to concentration, built on proprietary technology, superior wear life and supported by an unrivalled service network.

“The acquisition meets our near-term financial criteria before we pursue the revenue opportunities from bringing ESCO products into new markets through our global network. We are acquiring a high-quality business at the right time, with the market in the early stages of its recovery, providing opportunities for long-term growth. We intend to initiate a process to sell Flow Control to reallocate capital to build further on our core platforms.

“Weir will be a focused premium brand business with leading technology, increased scale, an improved mix of mining and oil and gas markets, higher aftermarket sales and the financial strength to invest in growth.”

ESCO Chairman and CEO Cal Collins said: "The foundation of our business for more than 100 years has been delivering value-added proprietary solutions through a proud tradition of quality and customer-driven innovation. This merger is exciting for ESCO as it combines two premium brands and positions us to better serve our customers around the world. The merger of ESCO into Weir is also a great fit, both culturally and strategically."

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