Good morning. My name is Kate, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Investor Relations Conference Call and Webcast to discuss Granite Construction's acquisition of Layne Christensen. This call is being recorded. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer period. To ask a question, please press star, then one. Please note, we will take one question and one follow-up question from each participant. It is now my pleasure to turn the floor over to your host, Granite Construction Vice President of Investor Relations and Government Affairs, Ron Botoff. Sir, the floor is yours.
Thank you. Good morning, and welcome to the Granite Construction call and webcast to discuss today's exciting announcement. Joining me on the call today are James Roberts, President and Chief Executive Officer of Granite Construction; Laurel Krzeminski, Chief Financial Officer and Executive Vice President of Granite Construction; and Mike Caliel, President and Chief Executive Officer of Layne Christensen. As a reminder, the slide presentation and press release regarding the transaction are available on our website and on the SEC website. We begin today with an overview of the company's Safe Harbor language. Some of the discussion today may include forward-looking statements. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, activities, performance, outcomes, and results. Actual results could differ materially from the statements made today.
Please refer to Granite Construction's press release and slide presentation, as well as the company's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Certain non-GAAP measures may be discussed during the call and from time to time by the company's executives. Please note that a reconciliation of certain non-GAAP measures is included as part of this morning's press release, and the presentation available now on our investor relations website. For more information, visit our investor relations website at investor.graniteconstruction.com. One additional note, we will release our fourth quarter and fiscal year 2017 financial results this Friday, February sixteenth, before the market opens.
We will hold an investor call at 8:00 A.M. Pacific Time on the same day. As such, we ask that you please keep your questions today related to the Layne Christensen transaction. We will answer all questions related to our fourth quarter and fiscal year 2017 results on our conference call this Friday. Thank you. Now, I would like to turn the call over to Granite Construction Incorporated Chief Executive Officer, Jim Roberts.
Thank you very much, Ron. Good morning, everyone, and thank you for joining us on such short notice. This is an exciting day for each of our great companies. I am pleased to be joined by Mike Caliel, President and CEO of Layne, on the call this morning. With Layne, we are establishing a platform for growth that is expected to create significant value for shareholders, employees, customers, and partners of both Granite and Layne. With that in mind, let's jump to the presentation. Today, we will discuss the transaction overview and the strategic dynamics that fuel this combination, as well as the compelling near and long-term financial benefits for all Granite and Layne stakeholders. Taking a look at slide 4, this transaction has a number of compelling shareholder driver, value drivers. We'll go through each in detail, but in short, here's what you should take away from this announcement.
First, this transaction is consistent with our growth and diversification strategy. While Granite is an established leader in the transportation market, since our acquisition of Kenny Construction in 2012, we have been looking for ways to expand our presence and strengthen our capabilities in the attractive water and wastewater markets. Combining with Layne, a leader in water management, construction, and drilling, does just that. Second, it is a highly complementary transaction. With Layne, we are broadening our portfolio and expanding our national footprint to better meet customers' needs. Third, we will realize a number of financial benefits, including significant synergies and earnings accretion, as well as additional sources of stable and diverse revenue for our shareholders. The details are in the release we sent out earlier today, but let me briefly review the key terms of the transaction on slide five.
This all-stock transaction is valued at approximately $565 million, including net debt, whereby Layne shareholders will receive a fixed exchange ratio of 0.270 Granite shares for each share of Layne they own. This represents a premium of 33% based on the volume-weighted average prices for Granite and Layne shares over the past 90 trading days. This also represents an enterprise value multiple of 8.2x 2018 expected EBITDA, including estimated full run rate cost synergies of approximately $20 million. Upon completion of the transaction, Granite shareholders are expected to own 88% of the combined company, and Layne shareholders are expected to own 12%. We will also be expanding the Granite Board of Directors to include an additional director from Layne, bringing our total number of directors to 12.
We have a clear path to completion, and we expect to close the transaction in the second quarter of 2018. Before I get into any greater detail on each of the key value drivers, I'd like to turn the call over to Mike Caliel for a few remarks. Mike?
Jim, thank you, and good morning, everyone. It's a pleasure to be sharing this call with Jim and other management members of the Granite executive team.
...Today, I'm very excited to share with you what I believe to be the most important and transformative announcement in Layne's 135-year history, as we enter into an agreement to combine our company with Granite. We believe this combination is the right move for our shareholders, for our customers, for our business, and for our people. And combining our two successful companies delivers a compelling set of operational and financial benefits, as well as strategic opportunities that weren't available to either company on a standalone basis. And like Layne, Granite is a great company and a trusted name, and for more than 95 years, Granite has built a track record of success in transportation infrastructure, and they recognize water and water infrastructure as the next great platform.
Over the last few years, Layne has been on a path to grow and improve our business, and thanks to the hard work, creativity, and dedication of Layne's employees, we've made great progress. This combination with Granite is the next step on that path and gives Layne the opportunity to do even more. Granite's committed to investing capital and resources to grow Layne and continue our long tradition of leadership and innovation in the water and water infrastructure industry. I believe this transaction is a win-win for all stakeholders, and in particular, from Layne's perspective, shareholders will capture immediate value through the 33% premium reflected in the share conversion, together with ongoing upside participation in the combined company.
Before I hand the call back to Jim, let me just say that we've come a long way from where we were three years ago, and I'm extremely proud of the Layne team and what we've been able to accomplish. This transaction positions our companies for continued growth and development, and I hope you'll share our enthusiasm about today's announcement as we create a larger, stronger, and more capable company. With that, let me turn it back to you, Jim.
All right. Well, thank you very much, Mike. Well, we highlight how and why Layne represents such an exciting opportunity on slide 6, allowing Granite to capitalize on the attractive macro dynamics of the U.S. water services industry. Please consider the scope of a couple of quick stats. The U.S. municipal utility sector is forecasted to spend $532 billion in capital expenditures through 2025. Of that, greater than 50% of this, more than $500 billion of investment, is expected to be related to water and wastewater distribution networks. There is an increasing demand for large water infrastructure programs due to lack of investment, increasing water supply scarcity, and population growth.
Similar to what we have experienced in America's surface transportation network over the years, decades of chronic underinvestment in the U.S. municipal water sector has translated into a network of pipes getting ever closer to the end of their useful life and failing at scale. We recognize that significant rehabilitation is needed to repair these networks. As we enhance our presence in this sector, we are confident that Granite will be poised to capture a greater percentage of the growing number of projects. As you can see on slide 7, Layne is a leader in these attractive and growing markets, with a number two position in Cured-in-Place Pipe, CIPP, rehabilitation, and the number one position in well drilling. Over its 135-year history, Layne has built a record of operational excellence and value creation, fostering strong brand recognition.
Their talented employees bring extensive expertise, know-how, and specialized skills in water-specific businesses that will contribute to enhancements in the collective capabilities of our workforce. Here on slide 8, you're gonna see a more specific breakdown of Layne's three business lines: Inliner, Water Resources, and Mineral Services. Each segment is industry-leading and operates in favorable markets. Layne's businesses align well with our current capabilities and broaden our portfolio. In Inliner, we will be focused on expanding liner manufacturing capacity, increasing third-party sales, enhancing cross-sharing of technical skills, and providing access to an attractive labor pool, all with an eye on leverage our existing capabilities that we have today in our Kenny Underground division.
We also were attracted to the improving dynamics of the water resource business, with significant investment and expansion opportunities in the midstream business, in broadening recycle and reuse capabilities, and in aligning the well drilling maintenance and services business to new geographies. And Mineral Services market dynamics appear to be improving, with global commodity demand finally ticking higher after nearly a decade of cyclical weakness. As we look at the revenue mix for the combined company relative to Granite's current mix on slide 9, you get a glimpse of the shift we expect to achieve as we move Granite into the water segment and grow our water end market position with the addition of Layne's businesses.
We anticipate approximately 14% of the combined revenue will come from the water-related services, 50% will continue to come from our construction segment, 30% from large project construction, and an estimated high single digits from our construction materials segment. With Layne, our pro forma revenue would be $3.3 billion, based on the last twelve months of both of our most recently reported quarterly financial results. Over time, we expect our water-related revenue as a part of our mix to increase as we capitalize on additional meaningful revenue opportunities, given the growing demand for large water infrastructure programs. Turning to slide 10. Importantly, the addition of Layne will allow us to offer a broader suite of services in more markets across the country with greater reach, particularly throughout the Midwest. Both companies bring different strengths in terms of products, services, segment positions, and geographies.
Laurel will speak to this as well, but the map here shows more than just our current respective footprints. It shows opportunities to introduce Layne in areas in which Granite has a presence, and vice versa. Together, we are taking our combined geographies and extensive capabilities and expertise to better meet customer needs and leverage a new platform for growth. Now, moving on to slide 11. As we think about bringing our two companies together, we have gotten to know each other well, and we have built a great deal of mutual respect in a fairly short time. As important as the benefits we have highlighted, I must emphasize that ultimately, this transaction is about our people, our common corporate cultures, and our similar core values, which are critical to creating a strong, lasting fit.
As Mike noted earlier, our companies and employees are both focused on sustainability, safety, integrity, and serving the communities in which we work and live. Additionally, both Granite and Layne are strongly aligned around providing exceptional products and services to our customers, and we look forward to bolstering this commitment as we become one team. For employees of both Granite and Layne, we expect this combination will lead to new opportunities for growth and development as part of a larger, dynamic, and more diversified company. Now I will turn the call over to Laurel to discuss some of the financial benefits. Laurel?
Thank you, Jim, and thank you all for taking the time to speak with us today. As you can see on slide 12, we believe this is a very attractive deal from a financial perspective, both in the short and long term. As we mentioned at the outset of the call, we are confident in our ability to achieve roughly $20 million in annual run rate synergies by the third year following the close of the transaction, with approximately one third realized in 2018. Costs to achieve these are expected to be approximately $11 million. We also project that the transaction will be accretive to Adjusted EPS and high single digit accretive to Adjusted cash EPS in the first 12 months following close, excluding non-recurring transaction and integration costs.
The result of this transaction is a combined company with meaningful scale and financial strength, which will enable us to grow and capitalize on these cost synergy opportunities. As part of this transaction, we anticipate assuming Layne's outstanding convertible debt with principal of $170 million. We will honor the terms and existing maturity date provisions of the indentures. $100 million of 8% convertible notes are expected to be converted at maturity, and $70 million of 4.25% convertible notes will be refinanced. The cash financing requirements of approximately $70 million will be funded through a combination of excess balance sheet cash and our existing revolving credit facility. Through this transaction, we will utilize Layne's tax net operating losses of more than $100 million.
These NOLs will reduce net cash tax expense for the combined company, positioning us to drive enhanced free cash flow, creating a benefit of approximately $20 million on a net present value basis. Following the close of the transaction, we will maintain an investment-grade credit profile with debt to EBITDA of less than 1.5x, assuming the conversion of Layne's 8% notes. The expected strong cash flow generation of the combined business will enable Granite to return to current leverage levels by the end of 2018. With our financial flexibility, we will be well positioned to invest for growth and deliver strong returns for shareholders. Turning to slide 13, we'll take a high-level look at where the synergy opportunities are.
These include opportunities to co-locate offices for the combined employee base, optimizing structure of common corporate operations, aligning organizational structures to drive efficiencies, consolidating and migrating systems, including IT, and implementing best practices across organizations to do our work as effectively and efficiently as possible. In addition to the cost synergies, we see opportunities for meaningful revenue growth. When thinking about the combination of our underground and Layne's Inliner divisions, we see tremendous opportunity to further vertically integrate, and this is in addition to the geographic expansion Jim discussed. We also expect to increase our ability to self-perform more work across the entire combined business. Finally, Layne's Mineral Services leadership will significantly enhance Granite's cross-selling ability for industrial and mining clientele. These are just a few highlights of where we see enhancements for our combined company as we integrate our expertise and capabilities.
With that, let me turn the call back to Jim.
Thank you very much, Laurel. Flipping to slide 14, we see a clear path to completion for our combination. We expect to close this transaction in the second quarter of 2018, and our teams will work closely to ensure a smooth transition. The transaction is subject to the approval from Layne shareholders and other customary closing conditions, including applicable regulatory approvals. In addition, Wynnefield Capital, which has an approximate 9% voting interest in Layne, has agreed to vote in favor of the transaction. Between signing and closing, proxy materials will be filed with the SEC, containing additional details about the transaction. Today marks an important milestone in Granite's nearly 100-year history. With Layne, we are taking the next logical step in our growth and diversification strategy to create a national leader across both the transportation and water infrastructure markets....
We are very excited about the benefits of this combination and the opportunity for significant value creation for shareholders, employees, and customers. With that, we'll be very happy to answer your questions. Operator?
We will now begin the question and answer session. To ask a question, please press star, then one. Please limit yourself to one question and one follow-up, and jump back in the queue if you have additional questions. To withdraw your question, please press star then two. Our first question is from Michael Dudas of Vertical Research Partners. Please go ahead.
Good early morning, gentlemen, and Laurel.
Good morning.
Morning, Mike.
My first question is, Jim, how do you foresee managing this business from a Granite and Layne standpoint? Is, how much of Layne's, employees and management team is gonna be-- you anticipate to stay with the company, and, and is it gonna be managed from an integration standpoint from a Granite, or is it a joint integration pool? Or kind of just a sense of how, going forward, Granite is going to, operate a business which, you know, some of it's quite integrated and looks very similar to Kenny, but some of it's not.
Well, first, Mike, we're obviously very early in the overall transaction. And what we're gonna be doing over the next coming months, we'll build an integration planning team with team members from both companies to address all the additional details relative to structure and people. So it's too early to give you a definitive answer to that, Mike, but I'm confident with the quality of the teams we both have in Granite and in Layne that the integration team will put together a high-quality team to oversee this business.
My follow-up would be maybe for Mike Caliel. Looking at your business relative to Granite's, on the water side, how much of the exposure on the industrial customers and the mining Mineral Services, is that where the energy opportunities that you guys have been working on over the past several years fit into, like, the Mineral Services side, or is it in your Water Resources? And how much of that is a percentage of the overall Layne revenues, and how will it fit going forward?
Mike, do you wanna go ahead and answer that, please?
Sure, Jim. Yeah. Well, our, our business mix is, is well balanced between, the municipal markets, and the industrial and agricultural markets. And obviously, we've, made, made several announcements over the course of the last year regarding our growing, Water Midstream business that, serves the energy sector. So we have a very well-balanced portfolio, which, I think is highly complementary with, with the Granite portfolio. And, and the combination, I think, really leverages the, the collective strengths and, will allow us to kind of capitalize on, on some of the market opportunities across, a number of different sectors.
But is muni what percentage is muni relative, private or maybe public versus private sector? Overall.
For Layne, about 50% of Layne's business is in the municipal sector. The balance is private.
Excellent. Thank you, gentlemen.
Thanks, Mike.
The next question comes from Jerry Revich of Goldman Sachs. Please go ahead.
Hi, good morning, everyone. This is Ben Baroody on for Jerry.
Okay, Ben.
Good morning.
Hi. Morning. Can you help frame the cross-selling opportunity you see with Layne products? And can you help frame the size of the opportunity, you know, similar to what you've done with the Kenny business?
Well, I mean, first of all, I thought I went through it a little bit in the discussion earlier. There's three divisions to the Layne business, and in every one of those cases, they are gonna be able to enhance our portfolio into the water segment. If you followed Granite's strategic plan and diversification strategy over the last several years, we've made it clear that we believe the water and wastewater infrastructure industry is one of the large platforms of growth going forward. The Inliner business with the rehabilitation of pipes is a ripe market for expansion, and teaming with our Kenny Underground division will be a heck of an opportunity for us. The Water Resources business, what we like about that business is that it's got a lot of recurring revenue.
It's got a lot of resource capacity to expand into the well drilling and repair and installation business. The Mineral Services business, again, goes back and complements the work that we do in the industrial and mining with our clientele there. So the combination of all of them put together really allows Granite and the Layne combination to be a leader in the water and wastewater market infrastructure, and that's been a key component of our strategic plan for the last two years. This is a huge step for allowing us to become one of the leaders in the country relative to the water infrastructure.
Got it. Then in Water Resources, you know, earnings performance has been a little choppy over the last two years. Can you kind of give an early assessment of what you think the drivers are for that performance and, and the business going forward, and maybe give an, an assessment of the backlog and, and margin outlook for the business?
Okay. So one of the things, as I mentioned earlier, Ben, is that we're just now building our transition and our integration planning teams. And we're gonna be working on those resources and those concerns and issues over the next several months, and we'll provide additional details as the integration team and planning teams come together and can work out some of those details. But that's probably not for a couple of months as we get closer to the individual close of the transaction.
Sure. Then can you just quickly talk about Inliner order rates in recent quarters, maybe what book-to-bill is there on a trailing basis and how the backlog is, you know, as it currently stands?
... Again, I think that, as far as the details go, Ben, we will work on allowing some of that, to work itself out during the integration and planning team work over the next couple of months. We're not today, diving into the details of each of the segments and their individual backlogs. Certainly, you can go into the Layne filings and see a lot of that, as we go forward here. But today, we're working more on a high-level discussion relative to the integration and planning and the strategic direction of the two companies together.
Understood. Thank you.
Thank you, Ben.
The next question is from Alex Rygiel of B. Riley FBR. Please go ahead.
Thanks, Jim, and this kind of follows upon the last question, so you may have the same answer, but I'm gonna try anyway. The Water Resources segment at Layne has been struggling in the last few quarters to drive attractive returns. Can you talk about some steps that either Layne's put in process or you're planning to put in process to improve those margins? And in your view, where should those margins be longer term?
Okay, I think you are gonna get a very repetitive answer, Alex. I think, again, the combination of the two companies is going to be working on an integration planning team, going forward. And I think answers to that, those questions are gonna be a very large part of the integration planning team and the transaction team. So I prefer to hold off on that until we get closer to the actual transaction close, which I mentioned is going to be sometime later in Q2.
Let me try another one. You mentioned in your canned remarks that you're planning on self-performing more activities inside the broader Layne business. Any chance you can add some more color or value on kinda how far you can move the needle on that front, and what kind of profit enhancement can be created from this activity?
Well, maybe what I'll do here is. And Mike is on the line as well. And, Mike Caliel maybe can answer, at a very high level, some a response to some of those questions. Mike?
Yeah. Thanks, Jim. Well, I think, there are certainly some opportunities within the infrastructure rehabilitation segment to, you know, to leverage the combined capabilities. Our Inliner division manages a number of very, very large programs, and I think the combination and the capability set that we have in that area is extremely complementary with the Granite-Kenny platform. So, you know, we think the combination will be very powerful, both from the standpoint of leveraging a broader portfolio of services, but also, leveraging, you know, the combined geographic reach and the resource base that we both bring to the table.
One last question, Jim. You also mentioned that water as a component of GVA's broader revenue pie would be growing at a faster rate. Is that a function of acquisitions? Is that a function of kinda internal organic growth cross-selling, or is that a function of kind of the macro market for water growing at a faster clip?
So, Alex, I think it's a combination of all the above, exactly. We are excited. We think that the water market itself is fragmented. We think there is more inorganic expansion opportunities in the water market as we go forward. We also think that with the Granite-Layne combination, we'll be able to grow the water portion of our business faster than the overall portfolio. So you basically are correct in all fronts. It's a very rapidly growing structure inside of the actual market, so it's exciting times.
Congratulations. Good luck.
Thank you, Alex.
The next question comes from Joe Giordano of Cowen. Please go ahead.
Hello, Joe, are you there?
Is your phone muted?
Sorry, it was on mute. Can you hear me now?
There you go, Joe. We got you.
All right, great. So just a question on the need for pipe rehab and pipe replacement has been around for a very long time. It's an obvious need, but it's one that's been taking... It's just not typically done that proactively in the United States. So what gives you comfort that, you know, that this is something that's gonna be picking up more than like, the sluggish pace that it's been, despite like, a pretty favorable municipal spending environment over the past few years?
Well, first of all, I think it is a pretty healthy environment relative to the spending. And I think what we're trying to do within the, within the Granite-Layne organization now, is utilize the combined capabilities of the Kenny Underground division and the, Layne Inliner divisions, to be able to enhance our overall market share to begin with. You know, there are consent decrees that are continuing to take place, Flint, Houston, a lot of other locations. So I do think there is an expansion in the market going on. It's a very large market, and I think that what we're trying to do is make sure that the combined companies get their share of the market.
So far, both the Inliner and our Kenny Underground division are both in very healthy environments, and we think the combination is gonna be even healthier. So we do see the market actually growing today nicely, and not stagnant at all, Joe. We think it's actually got a lot of infusion of capital going into it, and we're just trying to capture the overall geographic footprint of the U.S. to allow that to happen.
Have you seen a shift to more proactive kind of rehab, or has it been more so break and fix?
Well, I think when you say break and fix or, or proactive, I think they're attempting to get proactive, but we are so far behind across the country, that everything becomes somewhat break and fix, even with a proactive environment. So, you know, our diligence of understanding the marketplace shows that a lot of these programs are in place. They're trying to be as proactive as they possibly can, but again, since these pipes have gotten so old across the U.S., it does become repair and fix, even in a proactive environment. There's good things going on. There's, I mean, we've been through a combination of events, you know, on the transportation side, with infrastructure financing and innovation acts, known as TIFIA. We've now got WIFIA in place.
We're gonna have to leverage public-private dollars in order to expand this part of the business even faster. We see that happening. We can't rely, just as we're seeing in the current potential federal infrastructure program, we can't rely on the public sector alone, and the municipalities alone to take care of this. So I do think that WIFIA, the expansion of even PABs is starting to come back into play. The combination of all these events is gonna continue to allow this portion of the water sector to grow. And it's been a healthy sector for many years. And I will tell you, Inliner is a first class business with Layne, and when you overlap the geographies with Kenny Underground, it's gonna create a very compelling overall market positioning for the Layne and Granite organization.
And then maybe last from me, can you just talk about your product offering there on the CIPP versus some of the competitor techniques, and why you think that yours is the best option there?
Well, again, I would say that they have been very competitive for many years. Layne's been in business for 135 years. Inliner is one of the top brand names in the industry. They've got several forms of lining pipes. They're using steam, they're using ultraviolet rays, they're using water. They're a leader in the industry, not just from a size standpoint, but also from an innovation standpoint. And their products have been very competitive, and a lot of the customers would prefer their products. So we think they've got a tremendous market position today, and even Kenny uses a lot of the Layne products. So they're in a very good position right now.
Good. Thanks, guys.
Thank you very much, Joe.
The next question is from Brent Thielman of D.A. Davidson. Please go ahead.
Thank you. Good morning.
Good morning, Brent.
Hey, Jim, it's likely early, but I'm gonna ask anyway. Is it your intention to retain all elements of the Layne business? I guess I look at Mineral Services, and it would seem to be kind of an outlier to Granite's historical focus.
Yeah, I think it is a little early to ask the question. Certainly not too early to ask, but too early to respond. You know, we'll have a joint integration planning team put together here immediately, and they'll be spending the next several months to make sure that we optimize all parts of the business. And to be very honest, we conducted a rigorous due diligence process over the last year and last several months in very rapid form, and their business is strong in all aspects today. So our job over the coming months is to build an integration team and a plan that allows all parts of their business to excel. So we'll come back with more details as we get closer to the actual close of the transaction.
Okay. And then Jim, looking at the map on slide 10, I... You know, Layne's in a lot of locations that Granite perhaps isn't. Are there opportunities to leverage that footprint for the traditional transportation side of the Granite business?
We absolutely think so, Brent. We think that it's a combination of going both directions there, as I mentioned. You know, where, where they have a lot of their, their footprint, we do not do a lot of the transportation sector work. And almost, or maybe even more importantly, is where we have some significant physical positions, as you can see in the West, and when you look at the green on that map from before, with the opportunities for, for the Water Resources and the Mineral Services and the Inliner business across the Western U.S., we think the Granite footprint can help tremendously for them.
So yes, the whole point here is to expand the geographic footprint and allow not just the water portion of the Granite-Layne business to expand, but I think you're also gonna see the transportation sector be able to expand and use Layne's footprint to help that portion of the business as well. So part of the overall strategy here is to get Granite really spread and in all parts of the country.
Okay. Thank you. Congratulations.
You bet.
The next question is from Jose Garza of Gabelli & Company. Please go ahead.
Hi, good morning.
Good morning, Jose.
Congrats on the deal.
Thank you.
I know, I know the forms will come out, but just kind of wanted to ask about just the history of the deal and, you know, if there was a process run.
Well, I mean, the history is pretty simple. We've known and admired Layne, you know, for many years and got to know Mike and his team over the last year or two, and just really admired him. And as we got closer to being able to pursue a combination, we just became engaged in conversations, got to know each other better, got to respect each other, and that's how deals come together, is by really creating mutually personal relationships that you trust one another. And really, it has strictly been a very, very friendly environment. Got to know some of the Layne folks. Mike and his senior team have gotten to know the Granite folks, and that admiration for one another is where we are today.
Okay. Thanks. And on the new developments on the Layne side, and namely the Hermosa Pipeline, what are your kind of, I guess, initial plans in terms of additional investments in the Permian?
... Yeah, let me maybe let Mike answer that, 'cause that is a very exciting part of the business. And Mike, maybe you can provide a few details for Jose.
Hey, Jose, good morning.
Morning.
Well, we announced earlier this week, or I think it was late last week, sorry, the completion of the extension of pipeline. And we're, you know, we're continuing to invest and to grow our position in the Delaware. So, we're quite excited about the prospects and the combination and the ability to, you know, to combine the resources that we have with Granite and continue to capitalize on some of the tremendous opportunities that we have out there to continue to grow. And we've obviously had lots of discussions about our Water Midstream business, and you know, we're quite optimistic about the continued prospects there.
You're well aware of the deal that we had with the Texas General Land Office. You know, the combination of the market position that we have and, again, the combination with Granite and Granite's capital structure, we think is a great opportunity for the Water Midstream business.
Okay.
Thanks, Mike. Thank you, Jose.
The next question is from Kathryn Thompson of Thompson Research Group. Please go ahead.
Good morning. This is Steven Ramsey on for Kathryn.
Morning.
I was on a couple minutes late, so I apologize if this has been covered. I was curious in markets where your locations overlap, were you two, the main players serving those end markets, and did you compete head-to-head? And what was competition like where your locations overlap?
Yeah, really, Steve, there's not a whole lot of overlap. That's why this is so exciting. The only business lines that have any competitive environment would be in the CIPP business with Inliner and Kenny Underground. And today's markets, we really were not big competitors, and that's why the combination of those two businesses together is gonna create a much wider footprint. So very little overlap, but a lot of synergies as we start looking at the geographic footprint, where Granite can help the Layne business, and Layne can help the Granite businesses. And as we merge the two together, I think it's gonna be a tremendous opportunity to cover a very large geographic footprint in the U.S.
Excellent. Then, last question. For the international businesses within Layne, can you maybe talk about your growth trends there, if you were active in expanding and, and maybe views going forward on the Mexico and South America geographies?
Yeah, we're gonna be addressing a lot of that with the integration planning team, and we're working with Mike and Michael Anderson, his CFO, to really determine what the next steps are with those businesses. They've been very good business environments for the Layne business, and that'll be a long discussion relative to what are our next steps? How do we grow? How do we optimize during the actual integration planning process?
I appreciate it. Thank you.
Thank you very much.
Our last question comes from Bobby Burleson of Canaccord. Please go ahead.
Hey, guys. Congratulations on the acquisition. This is Jon DeCourcey on for Bobby. Just to,
Good morning.
Good morning. Just two questions, as most has already been touched on, but kind of piggybacking on the last question, regarding the overlap between Kenny and Inliner. Is there any kind of technical capabilities that are being acquired as well as just the geographic expansion potential, or is it all just the geographic kind of capability?
Well, I'll tell you that, you know, Layne, over their 135-year history, I can't tell you how impressed I have been with the innovation and the technology that Layne brings in every one of their businesses to the table. So absolutely, we will be adding new technology to the Granite businesses due to Layne's innovation with... And I specifically was talking about Inliner a few minutes ago. They're using technology today in Inliner that we're not using in Kenny. They also have a vertically integrated business, that allows them to actually build the, the tubes and everything that Kenny is using. That's certainly something that we will bring to a broader perspective. So, this is really exciting.
Layne is a very technically innovative company, and we're gonna combine a lot of our technical capabilities through our IT and a lot of the other things that we bring to the table from a geographic footprint, which really makes it an ideal combination. But I will tell you, I just can't. I want to reiterate how impressed I am with the innovation and the technical capabilities that Inliner has and the rest of Layne has. And there are certain things in our business in Kenny Underground that we do that Layne doesn't do. That's why the marriage of these two businesses from the CIPP business is ideal. And when you add in what Water Resources and Mineral Services does, with the combination of the Granite footprint and the overall capital structure, it creates a real, real opportunity for us.
Great. And then one, further question, kind of, following up on that is, you touch on the potential to expand upon, obviously, the water capabilities, but then the transportation as well, through the geographic presence of Layne. Is there any materials piece to this as well, where, you know, you can utilize some of the excess capacity in, you know, kind of expanding upon, the water offering as well, or is that not quite the overlap?
... I'm not sure. Why don't you restate that, if you would, Jon? I'm not sure what the question was.
Some of your materials capabilities in terms of being able to provide the raw materials, is there any overlap in kind of the same project work where you can sell into the Layne offering as well? Or is that, does that not really work because of the geographic presence of the Layne offering?
Well, I think there is, and I would say more than just materials. I would say that, you know, when you're looking at Mineral Services, I'm gonna go there first. Both of us are serving our industrial mining clients, but with two different products. So I think that's a really exciting merging of the Layne and Granite businesses, to get into that industrial mining clientele as a joint effort. I also think what Layne does is they not only in their, in all their business units, as being geographically spread, as you saw on the overall footprint of the U.S. You know, we've had as two of the major components of the Granite's expansion strategic plan is to grow into the water infrastructure, which obviously Layne is allowing us to do that in a big way now.
But we've also mentioned that we wanna move our vertically integrated on our materials business to the East. Having Layne's presence throughout the U.S. will certainly give us more knowledge of where the markets and the stronger markets are relative to our vertically integrated business opportunities. So putting that together gives us really the optics to see what's going on throughout the entire U.S., and you've got to be on the ground to truly understand what's going on in these businesses. So I think having the Layne footprint and the Granite footprints allows our people on the ground to really allow us to understand what's going on in each of the individual markets. So yes, I think there is a combination. I wouldn't say today it's a direct combination with our materials business, but I see one another enhancing each other.
Okay, great. Thank you very much.
Thanks, Jon.
This is the end of Q&A, and now I would like to turn the call back over to our hosts.
Okay. Well, thank you everyone for joining us this morning. Clearly, I just can't tell you how excited we are about this compelling combination. We look forward to working together with Layne in the integration planning process to realize the many, many benefits we've discussed here today. And of course, we look forward to speaking to you again when we report Granite's fourth quarter and full year 2017 financial results this Friday. As another note, feel free to reach out, as always, to Laurel, Ron, and myself. We're always available to answer questions, as best we can. We look forward to catching up with a lot of you. As a reminder, and I will remind you again this on Friday, that all three of us will be visiting investors in Boston, New York, and Chicago next week.
Thank you again for today, and we appreciate your interest in Granite and your interest in Layne.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.