Furious Pace of Post-IPO Acquisitions Put Forterra in Billion Dollar Hole, Shareholder Claims

(CN) – Shareholders claim in a derivative action that pipe manufacturer Forterra Inc. deceived investors with an initial public offering as costly transactions thereafter put the company in more than $1 billion in debt.

Filed in U.S. District Court for the District of Delaware District Court against Forterra executives and board members, plaintiff Maria Lee alleges that from December 2016 to August 2017 the company did not have the internal controls needed to maintain the numerous acquisitions after its October 2016 IPO. The lawsuit also alleges fraudulent accounting, operational problems in its plants, and ineffective growth initiatives.

According to the lawsuit, Texas-based Forterra was acquired by private equity group Lone Star Fund IX in March 2015, and between April 2015 and October 2016, Lone Star caused Forterra to acquire U.S. Pipe for $775 million, Cretex Concrete Products for $245 million, Sherman-Dixie Concrete Industries for $67 million, Bio Clean Environmental Services and Modular Wetland Systems for $30 million, J&G Concrete Operations for $32 million and Precast Concepts for $97.1 million.

“By June 2016, as a result of the acquisitions, the company had approximately $1.2 billion in long-term debt,” the lawsuits states.

By May 16, 2017 Forterra’s stock had declined by 34 percent and in August 2017 after filing its second quarter financial report with the Securities Exchange Commission, it was evident that Forterra’s organic growth was stagnant , its sales growth was exclusively acquisition-generated, and financial figures were overstated, Lee claims.

Forterra’s tumultuous past four years included the resignations of its chief financial officer and chief operating officer, a whistleblower complaint, and multiple federal securities lawsuits wherein Forterra stands to shell out millions in payments and legal fees. The lawsuit also alleges that the individual executive and board member defendants were given excessive compensation and benefits all while breaching their duties of loyalty to the company.

Among other relief, investors want the defendants to disgorge profits including severance payments and bonuses, in addition to the restructuring of Forterra’s corporate governance.

Lee is represented by Brian D. Long and Gina M. Serra of Rigrodsky & Long, P.A. in Wilmington Del., and of counsel, Marion C. Passmore, Melissa A. Fortunato and Shaelyn Gambino-Morrison of Bragar Eagel & Squire in New York.

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