SNC-Lavalin seals $3.6-billion deal for WS Atkins with Caisse backing

SNC-Lavalin Group Inc. is buying British-based WS Atkins PLC in a deal worth $3.6-billion, the biggest ever takeover for the Canadian company it pushes into the top tier of engineering firms worldwide.
By The Globe and Mail
Tuesday, April 25, 2017

SNC-Lavalin Group Inc. is buying British-based WS Atkins PLC in a deal worth $3.6-billion, the biggest ever takeover for the Canadian company it pushes into the top tier of engineering firms worldwide.

Montreal-based SNC-Lavalin announced Thursday after markets closed that it struck an agreement to buy Atkins, a multinational engineering and design consultancy known largely for its expertise in transportation, infrastructure and aerospace and defense, for a price of £20.80 ($35.88) cash a share. The friendly deal, which has the backing of Atkins’ board, would create a global engineering powerhouse with annual revenue topping $12.1-billion and employing 53,000 people.

“We believe this acquisition is the right acquisition for our stakeholders, employees and clients,” Neil Bruce, SNC-Lavalin chief executive officer, said on a brief conference call to outline the deal. “It positions SNC-Lavalin well for our long-term growth strategy to making a global, fully-integrated professional services and project management company.”

Funding for the takeover will come in part from the Caisse de dépôt et placement du Québec, which is providing a loan to SNC-Lavalin of $1.5-billion secured by the value and cash flows on the engineering company’s 16.7-per-cent interest in Toronto area toll road Highway 407. The pension fund manager, one of SNC’s biggest existing shareholders, is also investing $400-million in equity.

“While offering continued financial flexibility to SNC-Lavalin, the structure of la Caisse’s financing helps protect its capital and allows it to benefit from the future performance of the company,” Caisse chief executive Michael Sabia said in a statement. “[That performance] is now even better positioned thanks to this acquisition.”

SNC had been scouting for an acquisition opportunity to cement its core engineering and construction business as it tries to put a bribery scandal permanently behind it under Mr. Bruce’s leadership. The company confirmed earlier this month that it made a tentative offer for Atkins.

The deal significantly improves SNC’s overall margins and balances its business portfolio, the company said. Atkins will bring SNC new and complementary capability in three of its four business sectors with almost no overlap in its offering, SNC said. Atkins operates chiefly in Europe, Britain, Scandinavia, the United States, the Middle East and Asia.

Buying Atkins also reduces SNC’s business risk profile because it adds ongoing revenue streams from framework and master service agreements for consulting and advisory services, the company said. Risk is also reduces as SNC absorbs Atkins’s fixed-fee consultancy and design projects, the company said.

“This is the de-risking event we and the market have been looking for,” National Bank Financial analyst Maxim Sytchev said in a note published April 3. “The fear of SNC going after Amec or WorleyParsons is fully removed.”

The combination “checks all the boxes,” Desjardins Securities analyst Benoit Poirier said in an April 4 note. It allows SNC to diversify its revenue outside of Canada and away from oil and gas, he said.

SNC said it expects the takeover to be immediately accretive to its earnings per share, even before any revenue and cost savings. The company said the deal will deliver an estimated $120-million in cost synergies in both current companies by the end of the first full year after the takeover closes.

The combined entity has an opportunity to win a bigger share of nuclear work and maintenance and decommissioning in particular, SNC said. It said it will conduct a review of Atkins’s businesses to decide whether to make any structural changes but that this should not have a material impact on Atkins’s work force.

SNC said it expects to maintain its investment-grade rating when the deal is finalized.