Sterling Construction Company Inc. announced that it has signed a definitive agreement to purchase Denton, Texas-based Tealstone Construction for approximately $85 million, subject to specified post-closing adjustments. Sterling plans to finance the transaction through a combination of seller financing, common stock and new debt.

Tealstone is a commercial and residential concrete construction company in the Dallas-Fort Worth Metroplex. The company serves commercial contractors and multi-family developers, as well as national homebuilders in Texas and Oklahoma. The transaction is expected to close in the second quarter of 2017 and is contingent on customary closing conditions including a new $85 million credit financing and regulatory approvals.

Tealstone Highlights

• Focuses on concrete construction of commercial buildings, elevated slabs, multi-family and residential housing foundations and serves commercial contractors, multi-family developers and leading homebuilders;

• provides Sterling with diversification of revenue streams, a broader range of customers, operational synergies and expanded project opportunities;

• double-digit business growth generating double-digit margins;

• potential to expand into other regions where Sterling has a major presence;

• transaction expected to be accretive to EPS and generate substantial free cash flow in 2017; and

• financing the acquisition through a combination of $15 million of seller financing, 1,882,058 shares of Sterling common stock, and $55 million of debt from Sterling's new $85 million credit facility, which will replace our existing facility.

On a pro forma basis, assuming the Tealstone acquisition had been completed on Jan. 1, 2016, the full-year incremental consolidated revenues, net income and earnings per common share to Sterling would have been approximately $165 million, $8 to $10 million and $0.30 to $0.37, respectively. The 2016 pro forma adjustments include estimated financing and acquisition-related purchase accounting costs and the impact from issuing 1,882,058 shares of common stock. The pro forma 2016 average common shares outstanding totals approximately 27 million.

Joe Cutillo, Sterling's recently-appointed president and former EVP of strategy and business development, stated, “The acquisition of Tealstone is well aligned with our growth strategy and meets our criteria for expanding into adjacent markets while improving margins, and diversifying our revenue sources and customer base. More specifically, we expect Tealstone's expertise in concrete construction to enable us to increase our penetration into the Texas market for commercial projects by strengthening our ability to win attractive airport, parking garage and other, non-heavy highway opportunities throughout the state.

Additionally, we believe that this acquisition will allow us to enhance the profitability of our Texas road work given Tealstone's unique capabilities in the construction of curbs, sidewalks and driveways, which are often a meaningful portion of the costs to complete roadway projects.”

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