Shares in U.S. engineering giant Aecom surged nearly 6 per cent in trading on Tuesday amid speculation about a possible merger with WSP Global Inc. in what would be the Canadian firm’s biggest-ever deal.
Montreal-based engineering consultancy WSP, which works on many of the world’s tallest skyscrapers, has approached Aecom about a possible deal, Bloomberg reported after markets closed on Monday.
No information was given on the possible structure of an agreement in the report, which cited people familiar with the matter. There’s no guarantee the overture would lead to a transaction, the report said.
New York-listed Aecom’s share price climbed 5.7 per cent to close at US$49.74 in trading on Tuesday. Toronto-listed WSP inched up 0.3 per cent to $93.88.
WSP spokeswoman Isabelle Adjahi said the company does not comment on what she called “rumours,” and holds formal and informal discussions regularly with peers as part of its strategy.
“We talk to a multitude of firms – small, medium or large ones,” Ms. Adjahi said. An Aecom representative did not respond to a request for comment.
“WSP’s leadership team isn’t afraid of transformative deals,” Raymond James analyst Frederic Bastien said in a note. “A merger would create the undisputed global behemoth in engineering and consulting services, bringing with it the benefits of scale and diversification.”
Aecom’s stock price has roughly doubled since December, 2018, making an outright takeover more difficult. The value of a transaction including debt could top $12-billion, assuming payment of a 20-per-cent premium, according to estimates by Bank of Nova Scotia.
Aecom’s share surge on Tuesday put its market capitalization at US$7.8-billion. WSP’s market value is about $9.9-billion (US$7.6-billion).
Once a boutique engineering firm known as Genivar Inc., WSP has ballooned over the past eight years to become a major player in global engineering services and project management. It roughly tripled in size when it bought British professional services company WSP Group PLC in 2012, then doubled in size with the purchase of U.S.-based Parsons Brinckerhoff in 2014.
Among WSP’s 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 trying to build WSP’s profile and expand its capability in a three-year strategy to make additional acquisitions and win more business. He has said he wants to boost net annual revenue by one-third to at least $8-billion and expand WSP’s employee base to 65,000, an increase of 35 per cent, by the end of 2021 while generating higher profit margins.
WSP has already eclipsed SNC-Lavalin Group Inc. as Canada’s largest engineering firm by stock value. It operates solely as an engineering design consultancy business.
Joining Los Angeles-based Aecom would give WSP added presence in the United States, while boosting its strength in environmental and water engineering, a key goal. It would also increase its exposure to U.S. government business, Scotiabank analyst Mark Neville said.
“We believe a merger of equals is more of an appropriate structure” compared with a cash and equity takeover, National Bank of Canada analyst Maxim Sytchev said. The merger of two U.S. aerospace and defence companies, United Technologies Corp. and Raytheon Co., provides a useful model, he said.
Aecom is in leadership transition, with CEO Michael Burke retiring. It is also under pressure from activist investor Starboard Value, which last June called out Aecom’s “consistently poor operating history” and "years of disappointing shareholder returns.”
Aecom has since sold its management services business for US$2.4-billion.
Aecom brought three new independent directors to its board last November under a governance agreement with Starboard. One is Robert Card, who steered SNC-Lavalin through an ethics and corruption crisis as CEO from 2012 to 2015.
While Starboard’s influence at Aecom could be a catalyst for a deal with WSP, any agreement would have to be sensitive to Quebec political considerations on head office location and jobs. Premier François Legault’s government considers WSP and SNC-Lavalin to be Quebec’s two “flagship” engineering firms, with strategic roles in the provincial economy, Economy Minister Pierre Fitzgibbon has said.
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