SNC-Lavalin buys UK engineering consultancy Atkins for $3.6 billion
Montreal-based SNC-Lavalin announced that it has completed a C$3.6 billion acquisition of Atkins, a UK-based global design, engineering, and project management consultancy. The deal gives the Canadian engineering and construction giant an even larger stake in the international infrastructure, transportation, and energy sectors. However, analysts say a pension deficit and projections of revenue decline at Atkins may lead the new owners to cut jobs, as they look to cover a $1.5 billion loan behind the purchase.
Headquartered in the UK, Atkins is a global engineering consultancy that employs about 18,000 staff across Britain, Scandinavia, the US, the Middle East, and Asia. The company’s portfolio includes notable projects such as the controversial Hinkley Point nuclear power-plant and the Crossrail2 project – a £32 billion endeavour which has been threatened by the increasing uncertainty surrounding Brexit.
Atkins also worked to assist fellow engineering and design consultants Arup with a £416 million overhaul of London’s sewage system – the Thames Tideway project will build a 25-km system aimed at reducing sewage overflows. However, positive outlook for the firm has come into doubt after internal sources leaked plans for job cuts at the company’s building services division. Atkins claimed the cuts were a result of “challenging market conditions” where, despite their plethora of high-profile public sector projects, a downturn in business was set to cut revenue by £20 million. With the planned cuts leaking just four days before the merger deal was announced, it is possible the two could be connected.
Speculation about Atkins’ future heated up earlier in the year, when CEO Uwe Krueger hinted at the possibility of a merger, stating that the firm needed to grow. Initial attempts by rivals to obtain Atkins were rebuffed, with CH2M Hill being snubbed by the firm’s board. However, soon after, it emerged that the RBC Canada was advising SNC-Lavalin in the financing of a deal, while Atkins was simultaneously receiving advice from banks Moelis and JPMorgan.
The eventual takeover by the Canadian engineering consultancy saw terms include a £20.80-a-share cash buyout, about 35% above the closing share price on March 31, when talks first began. Atkins shares jumped over 5% in the aftermath of the agreement. After talks were announced, the news saw Atkins shares leapfrogging the offer price during the following Friday’s afternoon trading, reaching £20.99 as speculation emerged regarding a possible counter bid. Shares eventually closed at £21.02.
SNC-Lavalin’s many projects already include bridges, highways, power plants, train lines, and the acquisition of the FTSE 250 company will see the engineering and construction group further expand its global footprint. Atkins, who were named in the ‘top 100 big businesses to work for’ in 2017 by the Sunday Times (as well as a top 20 workplace among all businesses), will see Uwe Krueger step down as CEO after the completion of the deal. CFO Heath Drewett is expected to continue in the same role at the enlarged company following the merger.
Restructuring
According to SNC-Lavalin, Atkins brought in revenues of nearly £2 billion in the 12 months ending September 30th, while earnings before interest, tax, depreciation, and amortization numbered £173.2 million. The company also has a pension deficit of £424 million, a factor that director of UK advisory Applied Value Stephen Rawlinson said was a ‘buying deterrent’ for UK organizations. The presently weak pound was also an incentive for the Canadian firm, as it joined the surging wave of foreign suitors bidding on UK companies.
In the meantime, the sector continues to undergo a sustained period of activity. Earlier this year, Wood Group completed a massive £2.2 billion merger deal with rival engineering services company Amec Foster Wheeler. Following the initial fall of the value of the pound in the aftermath of UK’s Brexit vote in 2016, UK consultancy Phoenix Beardwas was acquired by Savills to grow their real-estate development advisory arm.
SNC-Lavalin themselves acquired UK-based oil and gas firm Kentz Corporation for $2.1 billion in 2014, as the company targets a sustained period of expansion in the sector. The Atkins deal, which is expected to finally close by September, is being funded through a combination of equity and debt, including a $1.5 billion loan from SNC-Lavalin’s largest shareholder. The company hopes to reclaim $120 million by the end of next year through the targeted elimination of a number of Atkins’ corporate costs, along with additional expense and operational savings – a statement which has led to growing speculation that SNC-Lavalin will axe large-scale redundancies.
A collective consultation process on job cuts is scheduled to begin in July, with staff affected in 13 locations. Meanwhile, 186 building design staff are currently in the process of redundancy consultation, with 92 jobs set to be lost at Atkins. Many who believed their jobs were safe despite the takeover are now fearful of further layoffs, fueled by the new ownership’s need to cover for the substantial debt incurred in the deal. Commenting on the recent redundancies, one employee remarked, “We have been told this has nothing to do with the takeover but that’s very hard to believe.”
