It appears Wall Street once again really likes Willdan Group Inc.
The Anaheim-based engineering firm (Nasdaq: WLDN) was a mystical 30-bagger as of last year, rising from $1 in 2012 to as high as $35.
The stock surge paralleled an equally impressive revenue jump of 99% in the two years ending in June of last year, one of the biggest gains for any publicly traded company in Orange County.
This past February, shares dropped under $20 as it fell out of favor before steadily climbing back to above $34 late last month.
Then the company announced on Oct. 4 that it would dilute shares by as much as 23% to acquire Lime Energy Co. (OTC: LIME) in a deal valued at about $120 million, the company’s largest acquisition.
On that day, its shares fell 8.4% to $31.63.
That was a temporary blip, as investors are again buying the Willdan story; shares have climbed to about $32.64 as of press time, and a $348 million market cap.
Why do investors keep pushing up the stock price? “I think it’s because we’ve been producing year-over-year revenue growth bigger than 30%,” Chief Executive Tom Brisbin said in an interview. “We’ve given guidance for annual growth greater than 20%. We expect to continue to do that.”
20% Annual Growth
Willdan, established in 1964, is a combination of the first names of founders William Stookey and Dan Heil, both now deceased. The company originally focused on providing engineering services to California cities.
A year after it went public in 2006, it hired Brisbin, who saw the company’s shares collapse during the financial crisis, plummeting from $10 to just over $1.
Brisbin shifted its focus to consulting work for rebuilding the U.S. electricity grid, a market he puts at $1 trillion.
He’s shooting for 20% annual revenue growth, half from organic sales, the other half through acquisitions.
The formula seems to be working.
In the past four years, it’s made six other acquisitions of engineering and data analytic companies.
The company’s revenue has surged almost fivefold since the end of the Great Recession from $62 million in 2009 to $273.4 million last year, when it was Orange County’s second-fastest growing midsize public company, with 99% two-year revenue growth, according to Business Journal data.
The acquisition will add $145 million in annual sales, pushing the firm to more than $400 million next year.
Lime Energy’s sales are projected to climb 16% this year, mostly organically through increased business from its largest customers, Brisbin said.
“They give us a greater expansion of geography in the U.S.,” he said. “It will help us on a national level.”
In particular, Willdan will pick up Lime Energy’s key customers, including Duke Energy Corp. (NYSE: DUK), the second largest utility in the country with 7.6 million customers.
Another big customer is the Los Angeles Department of Water and Power, the largest U.S. municipal utility. Brisbin said he hopes it will help Willdan enter the municipal utility sector, which has 3,000 entities.
The paper’s latest ranking of fast-growing public companies publishes next week.
Lime Buy
Lime Energy is a Newark, N.J.-based supplier of energy-efficiency programs for utilities, which use them to help businesses upgrade existing equipment and install more energy-efficient equipment.
The company’s products allow utilities to delay investments in transmission and distribution upgrades and new power plants while cost-effectively complying with increasing environmental regulations.
The acquisition will permit Willdan to expand its customer base from 10 of the 25 biggest U.S. utilities to 16.
“Lime is one of the leading energy-efficiency companies in the country,” Brisbin told investors on an Oct. 9 conference call. “We have closely followed the company for years, and have a great appreciation for their exceptional capabilities.”
Willdan, which has about 851 employees, is projected to have 1,110 with the acquisition. Its locations will expand from 43 to 51.
The sale is expected to close by end of the year. The company will continue to maintain its headquarters in Anaheim, Brisbin said.
Lime Stock Price
Lime Capital itself hasn’t had the best time on Wall Street.
Last year, it reduced shareholders from 300 to 110 so it could end Securities and Exchange Commission registration requirements and thus eliminate its annual $1 million in filing costs. At the time, Los Angeles-based private equity firm Bison Capital Partners IV LP owned 30% of company shares, and 29% was held by the estate of the late Richard Kiphart, a former Lime Capital chairman and a principal at investment bank William Blair & Co.
Today, some of its shares are still traded on the pink sheets, albeit lightly, with a 6,698 daily average. Since the acquisition announcement, Lime’s share price has more than doubled from $2.56 to $5.65 and a $54.7 million market cap, according to Yahoo Finance.
Exactly how much Willdan will pay per share and whether it’s a material amount is unclear. Brisbin told a Lime Capital investor on the conference call that Lime Energy would make a filing with the share price, but as of press time, the filing hadn’t been made.
Loan and Shares
Willdan reported $11.2 million in cash as of June 29. To pay the $120 million acquisition price, Willdan took a two-pronged approach.
It’s using a five-year, $70 million term loan with a 4.2% interest rate from BMO Harris Bank N.A. and MUFG Union Bank. It has access to another $60 million if it chooses.
It also decided to sell about 2 million shares at $30 each, raising about $56 million after fees.
After the acquisition is complete in the fourth quarter, Willdan will have about 10.9 million shares, indicating a 23% dilution of shares.
Brisbin told investors it chose to offer shares rather than increase its debt leverage through more borrowing. He also said the lower amount of borrowing gives it “financial flexibility for future acquisitions.”
Los Angeles-based Wedbush Securities Inc. and Newport Beach-based Roth Capital Partners LLC acted as joint book-running managers for the offering.
