Sterling Construction (STRL) Acquires Petillo

Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or “the Company”) entered into a Stock Purchase Agreement and closed on the acquisition of Petillo Incorporated and its related operating entities (collectively “Petillo”), on December 30, 2021. Petillo is a leading specialty site development solution provider in the Northeast and Mid-Atlantic. Founded in 1994 by owner and CEO Michael Petillo, Petillo has seen compound revenue growth from 2017 to 2021 of 29% through continued expansion of its geographic footprint, customer base and service offerings. Petillo’s 2021 revenues and income from operations are expected to be approximately $212 million and $29 million, respectively.

“We are excited to welcome the Petillo team, its culture and capabilities into our E-infrastructure solutions sector,” said Joe Cutillo, Sterling’s Chief Executive Officer. “Their entrepreneurial spirit focused on delivering customer-centric solutions coupled with their geographic footprint will enable us to service our key blue-chip e-commerce customers up and down the entire East Coast with even more offerings than we had before. Petillo’s capabilities along with our current Plateau capabilities will not only create one of the largest specialty site development companies in the U.S. but will also add broader capabilities and service offerings to both end markets.”

The aggregate consideration of $195 million paid on the Closing Date (the “Base Purchase Price”) consisted of $175 million of cash and 759,447 shares of Sterling common shares valued at $20 million. Additionally, under the purchase agreement, upon the satisfaction of achieving the specified annual operating income growth thresholds, and certain other conditions, the sellers are entitled to earn-out payments not to exceed $20 million over the next five years. The Company also entered into a five-year employment agreement with Michael Petillo, which provides for five equal annual retention payments totaling $15 million.

Effective December 29, 2021, Sterling entered into a Third Amendment to it’s Credit Agreement (the “Amendment”) which, among other provisions, increased the Company’s Existing Term Loans through a new incremental $140 million term loan with the same maturity as the Existing Term Loans to fund a portion of the Petillo acquisition. The Amendment was led by BMO Capital Markets Corp, as Joint Lead Arranger and Joint Book Runner, and BMO Harris Bank N.A., as Administrative Agent. The balance of the Base Purchase Price, together with acquisition related costs, was funded from Sterling’s cash balance.

Stifel served as exclusive financial advisor and Jones Walker LLP served as legal advisor to Sterling on this transaction.

Conference Call

Sterling’s management will hold a conference call to discuss this transaction on Thursday, January 6th at 9:00 a.m. ET/8:00 a.m. CT. Interested parties may participate in the call by dialing (201) 493-6744 or (877) 445-9755. Please call in ten minutes before the conference call is scheduled to begin and ask for the Sterling call. Following management’s opening remarks, there will be a question and answer session. Additionally, a slide presentation that will accompany management’s comments will be posted to the Investor Relations section of the Company’s website, which can be found at www.strlco.com, where a simultaneous webcast of the call will be available as well. If you are unable to listen live, the conference call webcast will be archived on the Company’s website for thirty days.

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