Deal Makers

Cincinnati-based CECO Environmental Corp. acquired Harleysville, Pa.-based Met-Pro Corp. for about $210 million August 26. Met-Pro was represented by Jeffrey H. Nicholas, a partner in Fox Rothschild's Warrington, Pa., office and chair of the firm's corporate securities practice group. CECO was represented by Leslie J. Weiss, a partner in the Chicago office of Indianapolis-based Barnes & Thornburg.

Nicholas said he began doing work for Met-Pro as a young attorney in New York City and eventually became outside general counsel to the company, as well as a member of its board.

Though he relinquished his position as a board member following the passage of the Sarbanes-Oxley Act of 2002, Nicholas continued to work closely with the company.

Nicholas described Met-Pro's rise to prominence in Southeastern Pennsylvania as "a Philadelphia story," having gone public in 1968 and remaining one of the region's stalwart small-cap companies ever since.

"It's been a bit of a jewel," Nicholas said. "It's been well-run, well-managed and it has made money."

According to Nicholas, CECO, which specializes in air pollution control systems, product recovery and filtration technology, and Met-Pro, which manufactures fluid-handling, product recovery and pollution control equipment, as well as filtration products, were aware of each other over the years but were not direct competitors.

CECO, however, has been "very acquisitive" in recent years, Nicholas said, and took an interest in Met-Pro around 2010.

"In 2010, there started to be discussions between the two companies about doing a deal but CECO was in the midst of restructuring and there was a big gap between what they thought they were worth and what Met-Pro thought CECO was worth," Nicholas said.

At that time, according to Nicholas, the proposed deal was to be a "merger of equals," as opposed to an acquisition.

Talks fell through, however, and it wasn't until August 2012 that they resumed, Nicholas said.

By that time, CECO had successfully completed its restructuring and "the valuation gap was something that was negotiable," Nicholas said.

But whereas a merger of equals typically calls for equal representation of both companies on the combined board of directors, CECO made it clear that it wanted to control the newly-formed entity, according to Nicholas.

"We said to them, 'If you want control, you've got to pay for it,'" Nicholas said. "So then the deal shifts into a traditional acquisition."

From there the negotiations turned to determining how much Met-Pro was worth, and at first, Nicholas said, the two companies had very different numbers in mind.

"We wanted to get a fair price," Nicholas said. "There were no problems in the company that compelled us to sell. We were able to sit back and say, 'Look, we want to get our price and if we don't, we're comfortable with continuing with this very fine company.' It was not a stress situation where we were obliged to sell."

Nicholas said he and his team reminded CECO's representatives of that position a few times during the several rounds of negotiations over the purchase price.

"We let CECO know that whenever it was appropriate to do so," Nicholas said. "We knew they very much wanted to buy Met-Pro and we didn't need to sell."

Nicholas called the process "every deal lawyer's dream."

"It's very intense, very complicated and very challenging, both in terms of legal issues and logistical issues," Nicholas said. "You've got to have your eye on the [client's] employee base, the board of directors and the other party. You've also got to have your eye on the disclosure obligations of a public company. It's great stuff as a lawyer."

DEAL DETAILS

CECO eventually agreed to purchase Met-Pro for about $210 million, or $13.75 per share, Nicholas said.

According to Nicholas, the share price included $7.25, or 53 percent, in cash and $6.50, or 47 percent, in stock.

Nicholas said there were two reasons why the transaction included both stock and cash.

One was that there was only so much cash CECO, being a relatively small company, had on hand or could raise, according to Nicholas.

The other reason was that the original transaction the companies discussed would have been an all-stock merger of equals, Nicholas said.

Nicholas worked closely on the deal with fellow Fox Rothschild partner Vincent A. Vietti and associates Lauren W. Taylor and Alexander J. Tablin-Wolf.

Along with that core team of attorneys, Nicholas said, another six or seven Fox Rothschild tax, real estate and litigation attorneys handled various aspects of the deal.

Weiss did not return a call seeking comment.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.