Mayville (MEC) Acquires Mid-States Aluminum, Expands Portfolio
Mayville Engineering Company, Inc. MEC acquired Mid-States Aluminum Corp. (“MSA”), a privately held, vertically integrated manufacturer of custom aluminum extrusions and fabrications, for a net consideration of $90 million on Jul 1. The acquisition was previously expected to be completed during the third quarter of 2023.
The closing price came in after certain adjustments for cash, indebtedness, net working capital and certain expenses of MSA, given the purchase price was $95.9 million. On Jun 29, Mayville entered into an amended and restated Credit Agreement led by Wells Fargo Bank determining a credit facility increase from $200 million to $250 million and a total borrowing capacity of up to $350 million. A portion of the increased available credit facility was used for MSA’s buyout.
Buyout Benefits
MSA offers various value-added services, including design, engineering, extrusions, fabrication and related services. The acquisition of this Wisconsin-based company enabled Mayville to establish a solid and appealing place within lightweight materials fabrication, along with providing significant new cross-selling opportunities with new and existing customers.
Mayville expects that MSA’s futuristic design, engineering and manufacturing capabilities will complement its existing operations and provide scope for higher-margin profitable growth within growing adjacent markets. MEC is optimistic about the long-term growth projections from this acquisition which is aligned with its MBX value creation framework.
At the closing, MEC determined the acquisition to be immediately accretive, excluding transaction costs, to its earnings per share (EPS), adjusted EBITDA and free cash flow. For 2023, the buyout is expected to contribute $30-$35 million to net sales and $4-$6 million to adjusted EBITDA, given current market conditions. In 2022, MSA generated total revenues and adjusted EBITDA of approximately $86 million and $16 million, respectively. Adjusted EBITDA margin was more than 18%.
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Shares of MEC have gained 48.4% in the past year, outperforming the Zacks Engineering - R and D Services industry's 38.9% growth.
Value Creation Initiative
Mayville has been witnessing progress in its operational efficiency and top-line growth for a few quarters. In 2022, the company initiated its transformative MEC Business Excellence (MBX) program in pursuit of margin expansion and profitable growth. It initiated this program in its Hazel Park and Michigan facilities, which are key milestones in the company’s long-term value creation framework.
The value creation framework of Mayville focuses on high-performance culture, operational excellence, commercial excellence, disciplined capital deployment and commercial expansion as well as human resource optimization. In first-quarter 2023, the company witnessed impressive results following the execution of the MBX initiative and is on track to meet its expected contribution for 2023.
In the first quarter of 2023, MEC’s net sales and adjusted EBITDA grew 4.7% and 6.3%, respectively, year over year. The result was backed by the impact from the Hazel Park facility ramp. For 2023, the company expects to deliver between 40 and 70 basis points of manufacturing margin benefit related to the MBX initiative.
Zacks Rank & Key Picks
Mayville currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Construction sector are Eagle Materials Inc. EXP, Dycom Industries, Inc. DY and Vulcan Materials Company VMC.
Eagle Materials currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
EXP delivered a trailing four-quarter earnings surprise of 6.5%, on average. Shares of the company have rallied 38.5% in the year-to-date period. The Zacks Consensus Estimate for EXP’s fiscal 2024 sales and EPS indicates growth of 2% and 8.4%, respectively, from the previous year’s reported levels.
Dycom currently flaunts a Zacks Rank of 1. DY delivered a trailing four-quarter earnings surprise of 153.7%, on average. Shares of the company have risen 19.9% in the year-to-date period.
The Zacks Consensus Estimate for DY’s fiscal 2024 sales and EPS indicates growth of 8.3% and 41%, respectively, from the previous year’s reported levels.
Vulcan Materials currently carries a Zacks Rank #2 (Buy). VMC has a trailing four-quarter earnings surprise of 7.1%, on average. Shares of the company have gained 26% in the year-to-date period.
The Zacks Consensus Estimate for VMC’s 2023 sales and EPS indicates growth of 5.9% and 26.2%, respectively, from the previous year’s reported levels.
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