Spartanburg-based Synalloy Corp. has its eye on a Connecticut firm that could boost the combined company’s revenues to $381 million annually from projected Synalloy revenues of $240 million in 2015, according to a letter from the company’s president and CEO, Craig Bram.
Bram sent a non-binding preliminary letter expressing interest in acquiring Connecticut-based The Eastern Company, which reported net sales of $142 million for 2013, according to its annual report. Founded in 1858, the company manufactures industrial hardware, security products and metal castings from locations in the U.S., Canada, Mexico, Taiwan and China.
“Although there is certainly much to discuss and due diligence to be conducted before we could move forward with a formal letter of intent, I want to propose a potential deal structure that I believe could create substantial value for both Synalloy’s and Eastern’s shareholders,” wrote Bram. “Based on Eastern’s SEC filings, I would place an initial valuation of the company at $119 million, or $19.12 per share.”
The Eastern Company did not respond to requests for comment in time for publishing.
In the past four years, Synalloy has made three acquisitions that totaled $70 million in combined transaction value, including a $31.5 million acquisition of Specialty Pipe & Tube Inc. in November.
Including the November acquisition, the company projects 2015 revenues of $240 million, said Bram in the letter. “Synalloy has ample capacity to take on additional debt for our next transaction, while still maintaining a conservative balance sheet.”
Bram detailed a potential deal structure, which would include a purchase plan of 30 to 40 percent cash and 60 to 70 percent Synalloy common stock.
“The combined company would have annual revenue of $381 million and EBITDA of $48 million. Total debt would be $82 million. After making the change to control payments to Eastern executives, cash would total $18 million, resulting in net debt of $64 million,” wrote Bram. “Net income for the new company would total $22.0 million, or $1.65 per share.”
Bram also outlined potential benefits to shareholders of both companies if a transaction took place, including “greatly improved” liquidity; inclusion of the company in the Russell 2000, an index measuring U.S. equity small-cap segment performance; more consistent earnings via diversification of operating businesses and end markets; and increased company scale that could set the stage for larger acquisitions in the future.
Synalloy Corp. stock trades under the ticker symbol SYNL on the Nasdaq. Stock rose from 6.7 percent from $16.84 on Jan. 9 – the day the letter was filed with the U.S. Securities and Exchange Commission – to Jan. 12, before falling to $16.86 today around 11:30 a.m.
Stock in the Eastern Company – which trades on the Nasdaq under the ticker symbol EML – stock spiked 12.2 percent from $17.38 per share on Jan. 9 to $19.50 in midday. Stock fell from $17.71 at open today to $17.49 around 11:30 a.m.
Based in Spartanburg, Synalloy Corp. is a holding company for a diverse group of manufacturing businesses.
