The pandemic affected everything, including the initial public offering of Irvine-based environmental consulting firm Montrose Environmental Group Inc.
“We were meant to go public in the first quarter,” of 2020, recalled Chief Financial Officer Allan Dicks, a 2019 Business Journal CFO of the Year Award winner. “The week before filing our S-1, the markets crashed. We had to pull the filings back.”
Dicks, a native of South Africa, noted that late last February, the company was scheduled to make its largest acquisition ever—for $200 million and it intended to get the cash from the IPO.
“We had to scramble to get the facilities completely redone,” he recalled. “There was a lot of concern, not least with the lenders.”
2nd Stab at IPO
In the second quarter of 2020, the company became defensive, although business held up “remarkably well,” he said.
In the midst, it also installed new systems for customer relationship management and enterprise resource planning.
“We were stretched pretty thin,” Dicks said.
Dicks has led financial operations at six public and privately traded companies in the past decade, including taking two companies public.
As the market came back, Montrose decided to go public in July.
“We had to go through the IPO process twice, which was awful,” Dicks said.
Montrose (NYSE: MEG) had plans for its top 100 employees to ring the bell in New York City.
“None of that happened. It was a strange experience to go public and not go public. No trip to New York. No celebration at all. It felt like a monumental achievement but incredibly challenging.”
While Montrose raised $150 million, it priced its shares at $15, the low end of the previously announced $15 to $17 range.
“The book was way over subscribed but our underwriters said that given the market’s volatility, they wanted us to go out at a steep discount,” Chief Executive Vijay Manthripragada told the Business Journal hours after it went public.
“Pricing is more art than science. The science may have guided us higher, but the bankers wanted us to go lower,” he said.
On the day of its IPO, its shares climbed as high as $22.91 before closing at $22 and a market cap around $450 million. Since then, its shares have continued rising to above $40 and a $1 billion market cap.
Sweet Spot
Montrose provides a variety of environmental consulting work, including measurements and analytics, planning and permitting, environmental solutions, and waste-to-resources.
It has about 4,500 clients that range from governments to gas companies to utilities. Its units provide services like treating contaminated water, permitting work for large infrastructure projects, finding ways to reduce the carbon intensity of operations and converting waste to renewable energy.
Hot topics like aging infrastructure and climate change have increased awareness of the need for environmental services. It’s an industry not susceptible to a changing of top executives or elected politicians because the younger generation wants to protect the environment.
The rise of environmental, social and corporate governance fits well into its playbook, Dicks said. Nowadays, he’s spends 30% of his time with investors, having met 300 of them.
“My role has changed considerably,” Dicks said. “The CEO and I bring a lot of credibility.”
Acquisition Mode
The company has made more than 50 acquisitions over its history, including seven deals in each of 2018 and 2019.
Last April, it eventually completed the $200 million deal for Little Rock, Ark.-based Center for Toxicology and Environmental Health LLC, an environmental and scientific consulting company that specializes in response and toxicology work for “major environmental events” including natural disasters.
Earlier this month, it acquired Orlando, Fla.-based MSE Group, an engineering firm with more than 100 employees.
“Acquisitions are part of the business model,” Dicks said. “We aspire to be the leading environmental brand in the U.S. and globally.”
The company is expected to grow revenue 31% to $305.9 million in 2020, according to the average estimate of six analysts. They forecast growth will climb another 21% to $370.5 million in 2021.
Evidence of the market’s acceptance came on Thanksgiving week when some shareholders sold about $134 million in a secondary offering.
“It went well—it was done at $27—now we’re at $40,” Dicks said. “The market has responded. They love the story. There’s no pure play environmental company anywhere else.”
