In one of the industry's larger recent cross-border transactions, Montreal-based professional services firm Genivar Inc. has agreed to spend $431 million to buy the higher-revenue U.K. engineering firm WSP Group plc in a cash deal that includes pension liabilities.
The deal, announced on June 7, would add 9,000 employees over a broader global footprint to Genivar's 5,500 mostly Canadian staffers, and officials said they did not expect "significant" staff cuts. The transaction is set to close by July 31, with a vote by WSP shareholders scheduled for July 13.
Genivar will retain its listing on the Toronto Stock Exchange listing, with CEO Pierre Shoiry retaining that role for the enlarged firm and WSP CEO Christopher Cole becoming chairman. Observers say Cole is to retire.
Genivar's services include planning, engineering, surveying, environmental sciences, and project and construction management. The firm ranks at no. 62 on ENR's list of the Top 150 Global Design Firms, with about $572.6 million in 2010 revenue. The firm listed about $7.1 million in non-Canada revenue, with work in the U.S., France, Colombia and Trinidad and Tobago.
According to published reports, the firm's market value was about $800 million on June 7.
London-based WSP ranks considerably ahead of Genivar on ENR's global design firm list, listed at no. 32, with 2010 revenue of nearly $1.1 billion, two-thirds outside the U.K. About 44% of revenue was in general building, 30% in transportation and 12% in industrial work.
Observers say the global breadth has offered some cushion from the U.K. economic woes, but the firm's lagging stock value has made it an acquisition target and its home country is still the firm's "dominant geography," notes one. The firm laid off 400 staffers last year, says one U.K.-based report.
WSP launched an aggressive M&A spurt over the last decade, building their U.S. base by acquiring design firms Flack & Kurtz, Cantor Seinuk, Chas H Sells, and Environmental Strategies Consulting. But the firm's "low stock price and cash flow issues have slowed their global M&A and growth program down," says Boston-based M&A consultant Steven Gido. "I also think strong ties to slow UK economy has impacted overall performance."
"With complementary geographic footprints, end-market exposures and service offerings and very limited client overlap, the business fit between Genivar and WSP is expected to provide revenue diversification as well as enhanced capabilities to serve better their combined client base on a global basis," the companies said in a statement. "Genivar and WSP are highly compatible in terms of culture and strategic objectives. They are both pure-play consulting firms."
Gido says Shoiry "has tripled Genivar over the last few years, primarily through acquisition of niche Canadian environmental and engineering practices. So in my mind there is a heightened degree of integration scale, resources, and management needed to combine these two organizations effectively."
Genivar, while almost half the size of WSP, has about 30% higher profits, "clearly in part a reflection of its stronger market, as well as good management," says Andrej Avelini, managing director of EGCG, another industry M&A consultant and broker. He says the price, 9 times the firm's earnings before interest, taxes, depreciation and amortization (EBITDA), "is in line with M&A valuations for large firms (over $100MM in revenue) that we are seeing."
But Avelini notes that integration could be challenging, "given the geographic and potential cultural spread, with Genivar previously having no significant business outside Canada."
