WSP Global Inc., the Canadian engineering firm working on many of the world’s tallest skyscrapers, is buying U.S. environmental consulting firm Ecology and Environment Inc. as it bulks up its expertise and headcount in a new growth push.
The move comes as crosstown rival SNC-Lavalin Group Inc. announced it had won what it called “a significant” engineering services contract on Australia’s Inland Rail project, a 1,700-kilometre freight rail line between Melbourne and Brisbane. The company provided no details on the contract value.
Montreal-based WSP said in a statement Wednesday it will pay US$65.1-million for Lancaster, N.Y.-based Ecology and Environment (E&E), its fifth acquisition in eight months. About 80 per cent of E&E’s US$73.5-million in net sales last year came from the United States, where it is working for governments and private-sector clients on projects including the New York State Offshore Wind Master Plan, WSP said.
Once a boutique engineering firm known as Genivar Inc., WSP has ballooned in recent years to become a major player in global design consultancy and project management. Among its recent projects are Central Park Tower in New York, the La Guardia Airport redevelopment and Toronto’s Union Station.
Chief executive Alexandre L’Heureux is now trying to build out WSP’s profile and size further in a three-year strategy that aims to make additional acquisitions and win more business. He wants to boost net annual revenue by one-third to at least $8-billion and increase WSP’s employee base to 65,000 – an increase of 35 per cent – by the end of 2021 while generating higher profit margins.
If WSP achieves its ambitions, it will surpass SNC-Lavalin in headcount. SNC-Lavalin had about 52,400 workers at the end of 2018 compared with WSP’s 48,000.
WSP has already eclipsed SNC-Lavalin in market value, capitalizing on its pure-play engineering design consultancy business model. SNC-Lavalin, meanwhile, has struggled with cost overruns on construction and infrastructure projects while unsuccessfully trying to win a settlement on fraud and bribery charges. Its stock price has been crushed as a result.
SNC-Lavalin is now changing strategy to get out of lump-sum turnkey projects, which carry higher financial risk, and do more consulting-type work. It is bowing out of bidding on several projects in Canada for which it has been shortlisted, including Vancouver’s $2.8-billion SkyTrain Broadway extension, Vancouver’s $1.4-billion Pattullo Bridge replacement, Edmonton’s new Valley Line West light-rail line and Montreal’s Lafontaine tunnel modernization.
“It’s nice to see” that SNC-Lavalin’s Australia contract win is not in construction, said Maxim Sytchev, an analyst at National Bank Financial. As for WSP’s acquisition of E&E, it is a small deal that adds about 775 new employees and fits the company’s growth strategy, he said in an interview.
E&E was hurt by the U.S. government shutdown, which occurred from late December, 2018, to late January, as well as a loss of momentum after an internal restructuring and was not profitable over the past 12 months, Desjardins analyst Benoit Poirier said in a research note. Nevertheless, the potential cost savings of combining the two companies are significant and the merger could help “reignite net organic growth” for E&E in the future, he said.
Since January, WSP has struck deals to buy U.S.-based health-care engineering firm Leach Wallace Associates Inc., U.K. consultancy Indigo Planning Ltd., geotechnical specialist Sepia GC of France, and Swiss engineering company Todt Gmur + Partner AG, WSP spokeswoman Isabelle Adjahi confirmed.
Shares in WSP gained $1.33, or 1.9 per cent, in trading on the Toronto Stock Exchange to close at $71.21. They’ve climbed 27 per cent this year.
Shares in SNC-Lavalin fell 23 cents, or 1.4 per cent, to $15.82. Year to date, SNC-Lavalin’s share price has declined 65.5 per cent.