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E&E decides against sale to firm in Connecticut

Ecology & Environment has decided not to sell.

The Lancaster-based environmental services company has told a Connecticut investment firm that had offered to take the company private that it isn’t interested in selling.

Instead, E&E executives said Thursday that they think the company is in a position where it can start growing again, following a two-year restructuring program that has bolstered the firm’s profitability, even as its sales have softened.

“We have it within us to go forward and achieve growth,” Gerard A. Gallagher III, E&E’s president and CEO, said in an interview after the company’s annual shareholder’s meeting.

The investment firm, Mill Road Capital, has accumulated a 14 percent stake in E&E’s Class A stock, and had told the company’s executives last summer that it was interested in acquiring E&E for somewhere around $13 to $14 a share – a 30 to 40 percent premium to the company’s current share price.

But E&E executives, after slashing the company’s expenses and pulling out of unprofitable Asian markets, have put the company back on solidly profitable ground, with almost no debt and nearly $9 million in cash.

“We’ve done all the heavy lifting, and we want to bring value to the company in the long run,” said Michael S. Betrus, an E&E director who was part of a special board committee that examined Mill Road’s offer.

The company is looking for acquisitions that could help the company grow by expanding its presence in the environmental services market, perhaps by bulking up its engineering or planning services, mostly in the United States, Gallagher said.

“With our house generally coming into order … our attention has turned outward,” Gallagher said. “Our focus is on revenue growth.”

E&E’s sales have dropped for four straight years, and finished 2015 at $126.7 million, their lowest level since 2008. Low energy prices have meant less work in the oil and natural gas industry, while the strong dollar has hurt the performance of its foreign subsidiaries, especially in Brazil and Peru.

But because of the restructuring, E&E’s profits last year rebounded to their highest level in four years, even with the company absorbing a write-off of some Middle Eastern work that it never was paid for and taking a loss on the sale of its money-losing subsidiary in Kentucky that did a lot of work in the struggling coal mining industry. E&E earned $3.4 million, or 79 cents per share, last year, and its profits would have topped $1 per share without the write-downs.

“We’ve made substantial progress,” said Frank Silvestro, E&E’s chairman and one of its co-founders. “I think we are on track to grow organically and also through acquisitions.”

Gallagher said the company is interested in acquiring companies with between $5 million and $50 million in revenues. While E&E has some interest in acquisitions in South America, most of its focus is on deals in the U.S. market.

“We’ve screened a few already,” Silvestro said.

Silvestro, in the past, has said the company “has the bones” to handle as much as $250 million in sales. But with revenues now running at half that level, Gallagher said bringing in more sales would help improve the company’s cost structure and make it more competitive by allowing it to lower its rates as it bids on projects.

“For a company of E&E’s size, there’s a cost,” Gallagher said. “The company has to grow. That’s our mission No. 1 right now: to get to the profitability.”