Tear Sheet: Legence Holdings LLC Has Solid Rating Cushion As It Continues Its Debt-Funded M&A Strategy

Legence has funded recent acquisitions with a combination of debt and equity and it continues to demonstrate strong organic growth due to solid performance in end markets with high growth trends in data centers and bio-pharma. As of March 31, 2023, the company had a large backlog of over $1.5 billion. Still, the company has not consistently generated free operating cash flow (FOCF), which was negligible in 2022, largely due to increased working capital and a significant number of costs related to M&A due diligence and enterprise resource planning (ERP) system deployment. We expect to see better cash flow generation over the next 18 months due to incremental EBITDA from acquisitions, lower one-time costs, and the benefit of interest rate

...July 24, 2023 We expect Legence's 2023 credit metrics will be at the stronger end for the 'B-' rating, with an S&P Global Ratings'-adjusted gross leverage of about 7x pro forma for 2022 acquisitions. Legence has funded recent acquisitions with a combination of debt and equity and it continues to demonstrate strong organic growth due to solid performance in end markets with high growth trends in data centers and bio-pharma. As of March 31, 2023, the company had a large backlog of over $1.5 billion. Still, the company has not consistently generated free operating cash flow (FOCF), which was negligible in 2022, largely due to increased working capital and a significant number of costs related to M&A due diligence and enterprise resource planning (ERP) system deployment. We expect to see better cash flow generation over the next 18 months due to incremental EBITDA from acquisitions, lower one-time costs, and the benefit of interest rate hedges the company has in place that will save the company...

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