Compass Minerals said on May 9 it has acquired the outstanding 55% interest in Fortress North America, Rocklin, Calif., a next-generation magnesium-based fire retardant company, bringing the company’s ownership stake to 100%. Compass bought the interest for upfront consideration of approximately $26 million in cash, contingent consideration valued at approximately $28 million, and an earn-out of $0.30 per gallon on Fortress product sold over a 10-year timeframe.
Building upon a previous 45% minority ownership stake that Compass has held in Fortress since January 2022 (GM Nov. 5, 2021), the company said the transaction provides it full ownership of all Fortress assets, contracts, and intellectual property. Compass paid approximately $50 million for its initial 45% stake.
Compass said Fortress is expected to generate between $20-$25 million of revenue and operating profit and EBITDA in the low double-digit millions of dollars in fiscal 2023. Going forward, Compass told analysts that its goal for Fortress is to eventually achieve 50% market share. If successful, Compass said it believes Fortress has earnings power in the $40-$50 million EBITDA range. The company estimates the addressable North American market for aerial fire retardants to be roughly 70 million gallons, or between $200-$250 million.
Fortress this month entered into a contract with the US Forest Service whereby Fortress will provide up to five mobile-deployed fire retardant air tanker bases, utilizing Fortress’ newly designed, state-of-the-art mixing units. These units are expected to be deployed to air bases, where Fortress will supply product and attendant services for the 2023 fire season.
Under the framework used by US government agencies, including the USFS, to boost competition in critical sectors, a substantial portion of Fortress’ activity will be contracted by the USFS in fiscal 2023 specifically to enable and encourage Fortress to build additional scale. Fortress expects to continue to leverage Compass’ infrastructure, logistics, distribution network, and operating expertise in an effort to further increase its market growth and competitiveness in 2024 and beyond.
In December 2022, Fortress became the first new company in over two decades to have long-term aerial fire retardants added to the US Forest Service’s (USFS) Qualified Product List (QPL). Fortress’ FR-100 Powder and FR-200 Liquid Concentrate products met and exceeded the USFS’ testing criteria in such categories as environmental effects and toxicity to aquatic and mammalian species, corrosion on a variety of aircraft metals, burn retardation efficacy, and other qualifiers (e.g., long-term storability, acceptable viscosity, and pumpability), and finally the completion of a live wildfire operational field evaluation.
Founded in 2016, Fortress is a developer of proprietary formulations of magnesium chloride-based aerial and ground fire retardants, which Compass said have proven to be more effective and safer on the environment than traditional fire retardants on the market. Magnesium chloride is already an existing product stream out of Compass’ Ogden, Utah, solar evaporation facility.
“The value creation possible through the full integration of Fortress’ patented portfolio of next-gen fire retardant formulations with our extensive logistics and production capabilities made this acquisition a priority for our company,” said Kevin S. Crutchfield, Compass President and CEO.
“With the recent milestones attained by Fortress, our confidence in its earnings potential is bolstered as we gain a share of the next-gen fire retardant market, a counter-seasonal opportunity and sizeable addressable market that is now open to us,” he continued. “We are pleased to welcome the Fortress team into the Compass Minerals family.”
The leadership team at Fortress, including CEO Robert Burnham, will continue to lead and develop the business.