ADS buys Infiltrator in $1B deal, adds new market

Hilliard, Ohio-based Advanced Drainage Systems Inc. has purchased one of its strategic partners, Infiltrator Water Technologies LLC, in a $1.08 billion deal with the Ontario Teachers' Pension Plan.

The acquisition lets plastic pipe maker ADS, which is focused on managing stormwater for commercial, residential, infrastructure and agricultural applications, expand into the related area of septic wastewater treatment with a long-time customer.

Old Saybrook, Conn.-based Infiltrator has used ADS products for more than 15 years. The company posted sales of $275 million in 2018 — up 9 percent from 2016 — for its plastic leach field chambers and septic tanks for mostly residential use.

Infiltrator CEO Roy Moore and key managers will stay with the company and operate as a business unit within ADS.

With annual sales of $1.4 billion, ADS ranks third among pipe, profile and tubing extruders in North America, according to Plastics News' latest ranking.

The combined companies are expected to reach sales of $1.6 billion in fiscal year 2020 from manufacturing operations at 63 plants — 56 ADS and seven Infiltrator — that employ a total of 4,879 people, with 479 coming from Infiltrator.

Both businesses are gaining market share as more customers turn to plastic systems for storm water and septic solutions over traditional materials like concrete. Plastic chambers and tanks made of high density polyethylene and polypropylene now account for about 50 percent of the $1.2 billion septic leach field and tank business.

The combination of Infiltrator and ADS is expected to create synergies of $20 million to $25 million by the third year through manufacturing, recycling, logistics and significant cross-selling opportunities, ADS President and CEO Scott Barbour said in a conference call Thursday about ADS's quarterly results and the acquisition.

Barbour said Infiltrator is a natural fit for ADS with aligned growth strategies.

"They're an innovative bunch with a lot of engineering capabilities and competencies around materials and injection molding," Barbour said.

He described Infiltrator as a consistent innovator "keyed up" with new products and technologies from sustainable practices.

"We have a big focus on recycling and sustainability within our company. It's primarily been focused on polyethylene," Barbour said. "Infiltrator's focus is on PP, also an important material for us that we use mainly in a virgin or resin capacity. We're very excited to tap into the engineering and recycling scale and competencies of Infiltrator to accelerate our use of PP recycled materials."

Infiltrator, which is the parent company of Champion Polymer Recycling, is the fifth-largest consumer of post-industrial plastic in the U.S. ADS has a subsidiary called Green Line Polymers that recycles HDPE plastic and formulates it into recycled resin for the pipe maker. ADS is believed to be the largest consumer of recycled HDPE in the U.S.

In addition to similar visions, conversion strategies and commitments to recycling, ADS and Infiltrator have a long history of strategic partnership. They formed a joint venture called StormTech LLC in 2003 where Infiltrator manufactured chambers for water retention and detention while ADS managed sales, marketing and engineering support. ADS acquired Infiltrator's interest in 2010. Then, in 2012, Infiltrator acquired ADS's septic chamber business.

The latest deal closed July 31.

"This acquisition is a welcomed extension of our more than 15-year partnership built on mutual admiration and respect," Moore said in a statement.

ADS funded the acquisition from Ontario Teachers' Pension Plan with a new $1.4 billion credit facility, which will also help refinance existing debt.

The pension plan, which has $191.1 billion in net assets, is Canada's largest single-professional pension plan.