Graham Goes Nuclear
As a Graham Corp. (GHM) shareholder, I've been wondering when the company would put some of its sizeable cash stash to work. The answer came yesterday. Graham purchased Energy Steel and Supply, a small, nuclear certified, manufacturing company suppling raw materials and products for nuclear power plants.
Graham manufactures heat exchangers, vacuum equipment - big, heavy stuff - to process industries like refiners and petrochemical plants. It used to be a nuke certified manufacturer and is in the process of getting those certifications again.
Graham bought Energy Steel and Supply for $18 mil with a possible $2 mil kicker based on performance going forward. GHM will still have a petty cash drawer with $50 million and no debt after the purchase check clears.
During the call summarizing the acquisition, mangement said the price worked out to about 6x EBITDA and 1x sales, a very reasonable valuation. Management also stated the margins at Energy Steel were about the same as Graham's and that there would be a charge of 7 - 9 cents next quarter (GHM's FY11 third qtr), no impact the fourth quarter and the acquisition would be accretive in their FY12.
I like what I heard and Graham management sounded very pleased with the combined growth opportunities this deal offers, especially the potential for new US nuclear plants and for expanding Graham's already strong international business base - Energy Steel's business base is nearly entirely in the US.
Apparently, I wasn't the only one who like what I heard. In a sloppy day in the market, Graham share price went cha-ching to the tune of over 4%. Very unusual for the acquiring company in a deal to have its share price bid up.
If you're considering buying, please do your own research. The market cap is under $200 mil (for now anyway), it's pretty thinly traded, can be volatile and has already run about 15% over the last month.
As mentioned, I do own the stock but don't have plans to add to it at this time.