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Airgas Acquires Technical Alloy & Prices $300M Senior Notes

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Airgas, Inc. (ARG), the supplier of industrial, medical and specialty gases, and hardgoods has acquired the assets and operations of Team Welding, Ltd. which operates under the trade name of Technical Alloy & Industrial Gas. Financial terms of the transaction were not disclosed.

Headquartered in Houston, TX, Technical Alloy, founded in May 2001, is the provider of one-stop welding supply, which designs and built complete custom welding systems. Technical Alloy generated around $20 million sales in 2013.  

The acquisition is in line with Airgas’s strategic efforts to develop through organic growth. As per the buyout Airgas will add Technical Alloy and its 38 associates to the Gulf Coast region. The acquisition will help Airgas strengthen its competitive position and will provide it with an opportunity to expand its presence in the Houston area.

Airgas reported 2% year-over-year sales increase in fiscal 2014 mainly driven by acquisitions. Since the beginning of its fiscal year, Airgas has acquired 11 businesses with aggregate annual revenues of nearly $82 million.

On March 4, Airgas announced the buyout of Welding & Therapy Service, Inc., an industrial and medical gas and welding supply distributor with five locations in Indiana and Kentucky.

Airgas looks forward to continually enhance integrated product and service offering to customers through acquisitions of both core and adjacent product and service businesses in the future.

Airgas’ takeovers are in line with its strong balance sheet position. The company reported record free cash flow in fiscal 2014 and also marked a 48% year over year rise to $441 million. Its long-term debt decreased to $1.70 billion as of March 31, 2014, from $2.3 billion as of March 31, 2013. These factors also drove Airgas to authorize share repurchase, dividend payment and issuance of notes.

On June 12, Airgas unveiled the pricing of $300 million worth of 3.65% Senior Notes due July 15, 2024, which is in accordance with its strong balance sheet position. Depending on customary closing conditions, the settlement date for the offer is June 17, 2014. The net proceeds from this issue will be used for general corporate purposes including funding acquisitions and repayment of debt.

The book-running managers for this offering are the Goldman, Sachs & Co. – a wing of The Goldman Sachs Group, Inc. (GS). Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, – a unit of Wells Fargo & Company (WFC).

In addition, Moody's Investors Service -- the rating unit of Moody's Corporation (MCO) assigned a Baa2 rating to Airgas’ long-term debt. While Standard and Poor’s Corporation provided a BBB rating for the same.

For fiscal 2015, Airgas expects earnings per share in the range of $5.00 to $5.20, representing a 6% to 10% year-over-year rise. The guidance includes 11–16 cents per share of negative year-over-year impact from variable compensation reset following a below-budget year. Airgas expects its refrigerants business to make a slightly favorable contribution to its year-over-year earnings per share growth in fiscal 2015.

Although the recently started nonresidential construction projects will be beneficial for Airgas in the near term, its railcar production is still being weighed down by weakness in mining and defense.

Radnor, PA-based Airgas through its subsidiaries, distributes gases as a well as hardgoods to diverse businesses in the U.S. The company also markets its products and services through e-business, catalog and telesales channels.

Airgas currently has a Zacks Rank #4 (Sell).

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