Advanced Drainage Systems acquires Infiltrator Water Technologies from Ontario Teachers’ Pension Plan

Advanced Drainage Systems, Inc. has 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 per cent 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 utilise 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 per cent and free cash flow conversion of nearly 50 per cent. 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.