Heading into this week, Justin Jacobs was a dissident shareholder arguing for a shakeup at Ecology & Environment.
At lunchtime on Thursday, Jacobs was heading into his first board meeting at the environmental services company's Lancaster headquarters as one of two new directors backed by the activist Connecticut investment firm where Jacobs is a managing partner.
Jacobs' appointment to the E&E board, along with fellow Mill Road Capital representative Michael El-Hillow, came as a result of what E&E Chairman Frank Silvestro described as an "amicable" agreement struck between the two sparring sides on the eve of the company's annual shareholder meeting.
Mill Road, which owns about 15 percent of E&E’s Class A common stock, had launched a proxy fight to gain two seats on the company's board, and the battle for shareholder votes had turned bitter in recent weeks.
Mill Road said E&E's current board had "eviscerated” shareholder value after five years of declining sales and profits and charged that its directors had “a poor track record of managing.” E&E countered that the proxy fight was part of a plan by Mill Road to try to buy E&E on the cheap.
With a deal in place on Thursday, as about 75 E&E shareholders and employees gathered at Samuel's Grande Manor in Clarence, the two sides sought to downplay their differences.
"We're looking forward," Jacobs said after the meeting.
Even with two seats on E&E's seven-member board, Mill Road will be in a minority position, although it now will have access to information shared with the company's directors and be able to play a role in board-level discussions about the company's operations and its direction.
"Both sides were able to work together and come up with an agreement," he said. "You have to be able to work together constructively."
E&E did not disclose how shareholders had voted in the proxy contest, although Silvestro said after the meeting that the vote "was going to be close."
"We came to the conclusion, after we talked, that we had the same goals in mind," said Silvestro, an E&E co-founder who months ago had announced his plans to step down as chairman after the meeting. "I think some different viewpoints will be good for the company."
E&E has yet to name Silvestro's replacement as chairman. Its 10-member board has three new members, including investment banker and company-backed nominee Marshall A. Heinberg.
As part of the agreement, E&E-backed nominees, Robert J. Untracht and Michael S. Betrus, withdrew as board candidates. Mill Street also agreed to certain standstill restrictions that were not specified. Those restrictions likely would limit its ability to increase its ownership stake in the company or mount a takeover attempt.
Jacobs will join E&E's governance, nominating and compensation committees, while El-Hillow will be on the board's audit committee.
Mill Road executives argued last year that E&E should be taken private because it is too small to be a publicly traded company, forcing it to absorb millions in added costs. Over the past five years, the investment firm noted that E&E’s sales have dropped by 35 percent. E&E’s share price has fallen by roughly 41 percent during that time.
E&E executives on Thursday painted a different picture. They said E&E's struggles last year were largely due to the struggles at its South American operations, where revenues plunged by about 40 percent as many South American economies weakened and key mining and energy markets shrunk.
"Everything just went downhill in terms of the economies in those regions," said John Mye, E&E's chief financial officer.
Gerard A. Gallagher III, E&E's president and CEO, said E&E needs to get bigger, and told shareholders that he sees acquisitions as a powerful tool to bring in new sources of revenue to the company.
"We're small for a public company, but considered large for a pure-play environmental firm," he said. E&E had $106 million in sales last year.
But Gallagher also said E&E, which more than a year ago said it hoped to grow through acquisitions, is taking its time as it pursues potential purchases. He said E&E has screened 200 potential acquisition targets and met with more than 70 different firms. He said E&E has had in-depth conversations with about 30 of those companies and has whittled that down to a short list of acquisition candidates.
"Those discussions are more about finding a right fit," Gallagher said.
"We'd rather be smart than do this in a hurry," he said. "When you're putting professional services organizations together, you're really putting people together."
Story topics: Shared