Alberta-based global engineer Stantec Inc. confirmed rumors it was the front-runner among interested buyers for MWH Global Inc., Broomfield, Colo., with its March 29 announcement that it would acquire the water resources design-build giant for $795 million in an all-cash deal.
The intended purchase of privately held MWH, approved by both corporate boards and set to close possibly by May, would add to publicly-owned Stantec's more limited water-sector capabilities "throughout the full project life cycle," and propels the Canadian firm into significantly more global markets in the U.K., Europe, Australia-New Zealand and the Middle East.
The deal, a major construction industry acquisition, also would add 6,800 global MWH employees to Stantec's total of about 15,000.
MWH has been a major player in global water resources infrastructure and hydropower sector markets for decades. Projects include design work on the Panama Canal's Third Set of Locks, now being completed. The firm ranks second among global design firms in water treatment work on ENR's 2015 list and in the top five for wastewater treatment.
"Stantec's increased scope and size could also bring broader competitive threat [to sector firms, particularly to Tetra Tech] where water overlap is highest," says Andrew Wittman, analyst for Baird Equity in a March 30 research note. "We have long-highlighted an increasingly bifurcated industry structure, comprised of several mega-firms and many smaller, more niche-focused providers."
Stantec CEO Bob Gomes points to the firms' "combined talent to support the most technically advanced clients and projects." MWH Chairman Alan Krause notes the "extended global reach and highly complementary cultures." MWH says it has 187 offices in 26 countries. Krause, who has been CEO since 2011, will join Stantec in an unspecified executive role.
"This is a very impressive combination as MWH vetted suitors through their sale process," says one industry financial consultant, who declined to be identified. "You can now see the plates shifting in a more dramatic and accelerated way toward a new global competitive landscape for design services."
Another industry consultant, who also requested anonymity, says that changes in the global market have made it "harder for those of MWH Global's size" that are not in the public market.
MWH reported about $1.32 billion in gross revenue in 2015, of which about $500 million was related to construction work, according to an executive familiar with the acquisition. Stantec gross revenue last year increased 13.7% to $2.2 billion from 2014, the firm reported in its year-end results in February.
Major Construction Industry Acquisition
According to one former professional services firm CEO, "Stantec felt it needed a big step," in its growth strategy. The firm had made numerous smaller acquisitions in the past 15 years, primarily in the U.S. and Canada. "This is a huge step for them since they always were very shy about international [expansion] and they do not have anyone with international experience. It also could be a big risk. However, MWH is a great brand."
According to sources, MWH had been seeking a buyer for the last four to five months as it faced financial challenges, including falling profits and the inability to buy stock of retiring employees. "This deal took a while," says one observer.
Another industry consultant calls the proposed acquisition possibly "one of the last deals done of a quality-managed privately-held business" in the $500 million to $1.5 billion gross revenue range.
Observers differ on the price quality. While one consultant thinks the firms' cultural synergy and anticipated easier integration should have boosted the price Stantec paid, another says it was higher than many industry observers thought, with risk perceptions in the MWH construction portfolio.
Earlier suitors reportedly included design firms Tetra Tech and Atkins, and a number of private-equity firms, according to two execs with knowledge of the deal.
Another former industry firm CEO points to unspecified challenges in its construction operations and speculates that those operations might "packaged and sold" at a later date. The firm's construction unit acquired the Slayden Construction Group, based in Stayton, Ore. at the end of last year, that boosted building capacity in renewable energy, hydropower projects and river restoration markets, among others.
"Serial-acquirer Stantec has historically demonstrated a disciplined and synergistic model to integration of other firms' leadership, operations, and cultures, which will be put to the test given the size and scale of MWH," says the financial consultant.
In moving "from its North America base to a truly global presence," Stantec's buy of MWH "may serve as an accelerant for additional international purchases in other services/verticals," said the consultant.
But another speculates whether the transaction could make Stantec itself an acquisition target "at some point."