WSP Global Snags Prize with $1.35-Billion Bid for Parsons Brinckerhoff
As speculated last month, Canada's WSP Global Inc. has won a key prize in the industry's merger-and-acquisition sweepstakes with a $1.35-billion accepted offer to buy U.S.-based global design giant Parsons Brinckerhoff.
The Montreal-based firm announced the deal on Sept. 3 with PB parent firm Balfour Beatty that is set to close in the fourth quarter, possibly by the end of October. Boards of both WSP and Balfour Beatty have approved the transaction, which includes a $1.24-billion purchase price and $110-million cash consideration.
The deal creates a $4-billion professional services giant and provides Balfour Beatty PLC with a healthy return on its $626-million acquisition of PB in 2009.
The sale, which could close by the end of October, would create a professional services giant of nearly 32,000 employees that WSP President and CEO Pierre Shoiry says would be the world's largest "pure play" consulting firm.
WSP ranks at No. 16 on ENR's list of the Top 150 Global Design Firms, with $2.13 billion in 2013 global revenue. PB reported 2013 total engineering and construction revenue of more than $2.6 billion. It ranks at No. 24 on the Top 150 design list, with $1.72 billion in global design revenue last year. About $924 million was in the US. The firm also reported more than $713 million in program management/construction management services revenue.
The planned deal also helps the Canadian company realize a goal told to investors and analysts in June to make a "transformational" acquisition that provides a major boost to its presence in the U.S. and in transportation and other infrastructure. It also nudges the firm closer to becoming a 45,000-employee firm by 2020, another goal Shoiry communicated to investors.
"WSP and PB are highly compatible in mission, vision and culture," Shoiry said in a Sept. 3 analyst call. "This one checked all the boxes." WSP notes about $25 million in cost "synergies," half of which will be realized within 12 months.
The U.K. parent still owns Atlanta-based buildings consultant Heery.
The transaction value of 8.8 times earnings before interest, taxes, depreciation and amortization (EBITDA) “is at the upper end of the range of valuation metrics” in recent, similar industry deals, says Andrej Avelini, managing director of industry financial manager-broker EFCG Inc. The agreed deal for URS Corp. by AECOM in July was about 8.5 times EBITDA. It also is set to close next month.
According to sources, acquisition negotiations for PB began with 24 strategic buyers and 24 private equity firms in the hunt.
WSP and UK-based Atkins emerged as the finalists but the latter firm and PB were in too many similar types of work.
George J. Pierson, PB president and CEO for the last five years, told employees that WSP and PB "cultures and values are nearly identical."
He is set to join WSP and its board as an executive board director, although any more specific role now or after the deal closure was not detailed in the announcement.
"We need to figure out the best global structure and then determine who's best in the boxes," he told ENR. "It's premature to talk about roles."
In a note to employees, Pierson noted the importance of a buyer "that financially valued PB appropriately, but more importantly one that shared the less tangible ethic of what is important to us."
But It is not clear if changes are planned in how and where the PB name is used.
While PB “looked very hard” at private-equity ownership, “the market access with WSP outweighed the [private-equity] independence,” Pierson says. The firms are teamed in one of three consortia selected in July to bid for the $5-billion public-private partnership contract to design, build and operate a new crossing of the St. Lawrence River, in Quebec.
Shoiry sees a boost in WSP's U.S. presence to 6,200 employees with the PB deal, and added capability in Australia and the UK, where hard-hit markets are showing some positive signs.
"In the UK, there's room for some upside," he told analysts. "The private sector side is moving. We believe public sector spending will follow."
Shoiry also noted "some modest recovery in the past 3 months in Australia. It's encouraging but we still need consistency." Among other things, the country is set to sign a deal shortly to ship mined uranium to India.
Proceeds to PB's owner, London-based contractor Balfour Beatty, which acquired the New York City-based firm in 2009 for about $626 million, will aid the UK firm's bottom line after several recent profit warnings issued within the past year.
UK rival Carillion tried unsuccessfuly to acquire Balfour Beatty but negotiations ended in August over a demand to keep the professional services unit in place.
"The sale of Parsons Brinckerhoff follows the recent revaluation of our investments portfolio, which underlines the potential of this division to create value internally and across the group," said Balfour Beatty Executive Chairman Steve Marshall. "In the US, our core construction business is well positioned in a recovering market. In the UK we see the potential for margins to progressively recover to peer group levels."
Pierson says, however, that sale discussions began “months before the profit warnings” as the firms realized they could not gain enough global benefit from their linkage. One source with knowledge of the firms says the U.K. parent “did not invest in growing PB.”
Shoiry told analysts that WSP will likely look at other smaller acquisitions in selected countries, such as Canada and the Nordic countries.
"We will come out of this deal with a balance sheet that has some room," he said.
