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This New Listing is a Bet on Keeping America’s Bridges, Roads, and Hospitals Shipshape

John Jannarone

Atlas Technical Consultants Plans to Go Public via Combination with Boxwood Merger Corp.

By John Jannarone

From New York’s airports to crumbling roads in California, it’s no secret that U.S. infrastructure needs a helping hand. Fortunately for investors, there’s a soon-to-list company whose job is to be just that.

Atlas Technical Consultants is a leading provider of testing, inspection and engineering services for critical infrastructure, with over 9,000 annual clients both public and private, including the likes of Apple Inc., Walmart Inc., Stanford University Hospital, and the Georgia Department of Transportation. Atlas will become public after it’s acquired by Boxwood Merger Corp. (ticker: BWMC), a special-purpose acquisition company or SPAC which raised money to find a target. The deal is expected to close in the fourth quarter after it’s approved by shareholders.

There are several structural forces driving Atlas’s business. Perhaps most obviously, infrastructure in the U.S. is very weak, recently earning a grade of D+ on the American Society of Civil Engineers’ Report Card for America’s Infrastructure. That report gave the U.S. poor marks nearly across the board, from roads to schools to parks.

But even before major repair or engineering work takes place, there is recurring demand to inspect infrastructure to guarantee it’s safe. Some 80% of Atlas’s business is testing and inspection, which includes such services as quality assurance and disaster response. The remaining 20% consists of engineering, design, and construction support.

And once Atlas is hired, it tends to stick around for many years, with 90% of its work from repeat customers. San Francisco’s Golden Gate Bridge, for instance, has been under Atlas’s watch since 1997. Both Speedway and Phillips 66 have been clients for over 25 years.

Some projects can also be long in duration and labor intensive, locking in substantial revenue. At Stanford University Hospital, Atlas conducted specialty welding inspections of 18,000 tons of structural steel using two works shifts for 18 months.

Increasingly, work once done by state governments is handed to private-sector firms like Atlas. The role of a firm like Atlas in quality assurance work has become necessary as both workloads increase and they become more complex. Similarly, both public and private entities have turned to outsourcing construction and environmental services to cut costs and ensure compliance.

All that translates to very predictable revenue and profits. The current backlog of work covers 115% of the 2019 revenue forecast, which should give investors comfort as very little of Atlas’s work can be cancelled.

Indeed, Atlas should stay busy even in the event of a recession. The majority of its work relates to quality and safety checks that cannot be ignored just because times are tough.

Now that Atlas has gained scale and expertise, the opportunity is ripe to grow further through M&A. The industry is highly fragmented, with small regional players that tend to be privately owned. In total, there are a staggering 140,000 firms in businesses related to Atlas, allowing the company to choose transactions that are immediately accretive. Atlas has identified more than 20 targets with Ebitda exceeding $100 million, compared with its own expected Ebitda of $69 million this year.

Importantly, the M&A strategy isn’t simply about consolidating to cut costs. Rather, Atlas has potential to introduce a very wide range of services to clients of new companies it purchases. Such cross-selling has been effective with Walmart, which originally hired Atlas for environmental-related services but has since expanded to include material testing, facility assessment and asset management services.

M&A is a key motivation for bringing the company public. Publicly-listed shares will give the company another currency for dealmaking. And the SPAC transaction will help reduce net leverage from about 3.9 times to 3.1 times, according to the company’s estimates. That should give Atlas breathing room to borrow cash for deals as needed.

The deal also looks priced right. With an enterprise value of 8.6 times 2020 Ebitda and expected revenue growth of 11.6% next year, Atlas has both a higher growth profile and a lower valuation than its closest listed peers. NV5 Global Inc. is expected to grow 10% and trades at a multiple of 11.3 times while Tetra Tech, Inc. is expected to grow 9% and trades at a multiple of 16.7 times, according to Sentieo .

Atlas CEO Joe Boyer and Boxwood CEO Steve Kadenacy

Atlas’s senior management will remain onboard, including CEO Joe Boyer, who has over 30 years of experience and initiated Atlas’s successful M&A strategy. Steve Kadenacy, CEO of Boxwood, will become Executive Chairman, bringing a leadership background including the former President, Chief Operating Officer, and Chief Financial Officer of AECOM as well M&A experience.

Another positive – which has boded well for successful deals such as Repay Holdings Corporation and OneSpaWorld Holdings Limited – is the continued ownership and advisory role of the private equity investor. Bernhard Capital Partners plans to roll significant equity into the surviving company, keeping 23% ownership, and have two board seats.

Investors in Boxwood Merger Corp. have limited downside, with the shares trading at roughly the value of the cash held in a trust. With steady demand for infrastructure inspection and a big menu of appealing M&A targets, the outlook for Atlas is strong.

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