Stantec to Acquire MWH, a Global Professional Services Firm with Leading Expertise in Water Resources Infrastructure.Stantec concurrently announces a $525 million bought deal public offering of Subscription Receipts and new credit facilities.
Stantec Inc. is pleased to announce that it has entered into a definitive merger agreement pursuant to which it will acquire MWH Global, Inc. (“MWH”), a Broomfield, Colorado-based global engineering, consulting and construction management firm focused on water and natural resources for built infrastructure and the environment.
With the acquisition of MWH and its 6,800 worldwide employees, Stantec will gain a position as a global leader in water resources infrastructure while earning greater presence in key targeted geographies, including the United Kingdom, Australia, New Zealand, South and Central America, Europe and the Middle East.
Under the terms of the all-cash deal, unanimously approved by the boards of directors of both companies, Stantec
will acquire all of the issued and outstanding capital stock of MWH for a purchase price of approximately US$793
million (the “Purchase Price”). The transaction is valued at approximately US$795 million after taking into account
the estimated assumed net indebtedness of MWH, representing approximately 9.5x 2015 Adjusted EBITDA1. After
giving full effect to Stantec’s expected run-rate annual synergies of $33 million (approximately US$25 million), the
transaction is valued at approximately 7.3x 2015 Adjusted EBITDA1. These synergies are expected to be fully
realized in 2017.
“MWH brings a global presence and reputation in water infrastructure that will advance Stantec’s position as a toptier design firm within the highly attractive global water market,” says Bob Gomes, Stantec president and chief
executive officer (ceo). “Together, we share a commitment to our communities and have the combined talent to
support the most technically advanced clients and projects locally and around the world.”
MWH has a network of approximately 187 offices in 26 countries. The firm has a history of engaging in engineering,
construction and management consulting for some of the most technically significant water and natural resources
projects in the world, including the Panama Canal Third Set of Locks Project.
“We are excited to join the expertise and experience of Stantec and MWH in a transaction that will enable us to
thrive and grow amidst an increasingly complex industry landscape by strengthening our combined ability to solve
the most pressing water, transportation and infrastructure challenges today,” says Alan Krause, MWH chairman
and ceo “Our highly complementary cultures, shared approach to client service and extended global reach should
yield multiple benefits for our clients, employees and the communities we serve.”
Key members of the management team of MWH, including the presidents of key business units, will be joining
Stantec in significant leadership positions after the Acquisition closes (the “Acquisition Closing Date”). Alan Krause
and David Barnes, MWH chief financial officer, are committed to joining Stantec after the Acquisition Closing Date
to ensure a smooth and successful integration.
1 Adjusted for out of ordinary course severance, estimated savings associated with certain employee retirement plans and other one-time costs and items.
ACQUISITION RATIONALE
The Acquisition is aligned with Stantec’s growth strategy of building a top-tier presence in the markets it chooses to
serve. Historically, Stantec’s acquisition strategy has been focused on acquisitions in North America to develop a
mature presence across its business portfolio. Stantec has concurrently positioned itself to be able to execute on the right opportunity at the right time to expand its geographic footprint and service capabilities to further diversify its
industry leading platform. Specifically, the Acquisition is expected to: Create a Global Leader in Water and Infrastructure Markets The combined company is anticipated to build on Stantec’s position as a top-tier design firm within the global water market. The strong brand, reputation and enhanced service offerings of the combined company are expected to strongly position Stantec to compete throughout the full project life cycle on the most technically sophisticated water-related projects in the world.
MWH has a strong position and experience in international markets through its platform in the United Kingdom,
Australia, New Zealand, South and Central America, Europe and the Middle East. This should provide Stantec with
immediate geographic breadth, creating a platform for expansion and diversification. Management expects that the
combination of complementary capabilities, market presence, and cultures of each of MWH and Stantec will create
the opportunity to service more clients with a broader range of services, worldwide.
Enhance Cross-Selling Capabilities to Different End Markets The Engineering and Technical Services offered by MWH to the Energy and Industry sector are expected to add global capabilities in water-related design services to Stantec’s key hydro-power, oil & gas, mining, and industrial clients.
The global client portfolio of MWH is expected to generate opportunities for Stantec’s Energy & Resources
business operating unit to cross-sell its engineering services and provide clients with a broader enhanced service
offering through the complete project life cycle. In addition, opportunities exist to further cross-sell services out of
Stantec’s Buildings & Environmental Services business operating units to the client base of MWH.
Create Additional Growth Opportunities Management believes that the Engineering and Construction sector will continue to consolidate and that both scale and global capabilities will be important competitive differentiators, particularly on large and complex projects. MWH brings a history and experience of operating in global markets. Augmented by Stantec’s strong balance sheet, history of operational effectiveness and experience in successfully completing and integrating acquisitions, the combined company is expected to be well positioned to grow both organically and by acquisition in the future.
Add Water-Related Construction Capabilities
The construction capabilities of MWH have grown in response to its clients’ desires to have fully-integrated service
offerings for the water market. MWH has a diverse range of construction capabilities, with the majority of the
capabilities being construction management at-risk performed on water-related projects in the United States and
the United Kingdom. These services are provided to the key long-term water clients of MWH. Management expects
that the combined company will be able to build upon the strength of the construction capabilities of MWH and
have the ability to further meet the needs of Stantec’s existing water clients.
Additionally, the expertise available within the MWH construction business is expected to augment and improve
Stantec’s consulting services business by allowing it to better prepare for and execute on design-build projects with
other construction partners in both the water markets and other sectors in which Stantec participates in designbuild
projects.
Result in New Opportunities for Combined Company Employees
Stantec’s purpose is “Creating Communities” and the MWH purpose is “Building a Better World”. Together, the
combined company will share a commitment to advance the quality of life in our communities around the world.
The employees of the combined company are anticipated to have the opportunity to build on that commitment by
providing their expertise to more projects in more locations. We expect this will allow the combined company to
better serve its clients by drawing resources from across the globe to address each client’s specific needs.
FINANCIAL BENEFITS OF THE ACQUISITION
In addition to the strategic highlights listed above, the Acquisition is expected to be financially advantageous to
Stantec’s shareholders for the following reasons:
Meaningful Synergies Management estimates projected run-rate annual synergies of $33 million (approximately US$25 million), the majority of which are related to leveraging Stantec’s existing back office functions and optimizing its operational footprint. The balance of the projected synergies are associated with identified revenue opportunities related to cross-selling to new and existing clients, consistent with management’s experience in past acquisitions. Management expects approximately half of the run-rate annual synergies to be realized in 2016, with the remainder realized in 2017.
Implementation of Operational Best Practices
Stantec has industry leading margins driven by operational best practices. Management believes its experience in
successfully executing and integrating acquisitions will enable it to extend its best practices to the combined
company and enhance operational efficiency.
Highly Accretive Transaction
The Acquisition is expected to be immediately mid-single digit accretive to Adjusted Earnings per Share and midteens accretive to Adjusted Earnings per Share2 in 2017, assuming completion of the Equity Financing (as defined below), the Acquisition and the transactions related thereto.
Efficient Capital Structure and Dividend Growth
Stantec expects to efficiently lever its balance sheet to enhance the returns associated with the Acquisition. The
strong cash flow generation and growth prospects of the combined company are expected to reduce leverage levels from less than 3.0x pro forma 2015 Adjusted EBITDA1 at closing to less than 2.0x expected EBITDA by the end of 2017. Stantec’s strong balance sheet should provide it with the flexibility necessary to continue pursuing its growth strategy. Additionally, the Acquisition is expected to result in increased cash flow generation, which should enable the Company to reduce debt while supporting Stantec’s payout ratio and dividend growth.
“We believe the Acquisition will contribute to both strategic growth and value creation for many years to come.
Given the quality and the geographic diversification of cash flows generated by our joint operations, we expect our
financial position to remain strong. In the quarters to come, our focus will be on integrating and optimizing our
combined operations, and achieving the operational performance our shareholders have come to expect”, said Dan
Lefaivre, Stantec executive vice president and chief financial officer.
ACQUISTION APPROVALS
The Acquisition must be approved by holders of at least two thirds of the MWH shares at a special meeting of MWH
shareholders expected to be held in April 2016. The Acquisition is subject to certain customary conditions, including
approval under the U.S. Hart-Scott-Rodino Anti-Trust Improvements Act. Stantec anticipates the Acquisition to
close in the second quarter of 2016.
FINANCING
The Acquisition is expected to be financed with a combination of the proceeds of an equity financing and new credit
facilities as follows:
• A $525 million public offering of Subscription Receipts on a bought deal basis at an offer price of $30.25 per
Subscription Receipt for a total of 17,360,000 Subscription Receipts (the “Equity Financing”) and up to an
additional approximately $79 million in gross proceeds pursuant to an underwriter over-allotment option;
2 Earnings per Share adjusted to exclude estimated transaction-related intangible amortization, costs and other one-time items on an after-tax
basis.
• A $800 million senior secured revolving credit facility (the “Revolving Facility”), of which approximately
$233 million will be drawn; and
• A $450 million senior secured amortizing non-revolving term credit facility (the “Term Facility”).
Stantec has also secured a $525 million bridge facility (the “Bridge Facility”) which could be used in conjunction
with the Revolving Facility and the Term Facility to fund the Acquisition in the event the Equity Financing is not
completed on or before the Acquisition Closing Date. The Bridge Facility will be terminated in the event the Equity
Financing closes.
Public Offering of Subscription Receipts on a Bought Deal Basis
Stantec has entered into an agreement with CIBC World Markets Inc. (“CIBC Capital Markets”) and RBC Dominion
Securities Inc. (“RBC Capital Markets”) (collectively, the “Joint Bookrunners”), on behalf of a syndicate of
underwriters (the “Underwriters”) with respect to the Equity Financing.
In addition, the Underwriters have been granted an over-allotment option, exercisable in whole or in part at the
offer price not later than the earlier of the 30th day following the closing date of the Equity Financing and the
occurrence of a Termination Event (as defined below), to purchase up to an additional 2,604,000 Subscription
Receipts at a price of $30.25 per Subscription Receipt for additional gross proceeds of up to approximately $79
million. The Subscription Receipts will be offered to the public in Canada and the United States through the
Underwriters or their affiliates under the multi-jurisdictional disclosure system by way of short form prospectus
filed with the securities regulatory authorities in each of the provinces of Canada and with the Securities and
Exchange Commission in the United States. The Equity Financing is scheduled to close on or about April 14, 2016.
Each Subscription Receipt will entitle the holder thereof to receive, without payment of additional consideration or
further action, one common share in the capital of Stantec following the satisfaction of the Escrow Release
Condition (as defined below) plus a Subscription Receipt Adjustment Payment (as defined below), if applicable. The gross proceeds from the sale of the Subscription Receipts, less 50% of the underwriters’ fee with respect to such sale will be held by Computershare Trust Company of Canada, as subscription receipt agent, and invested as directed by Stantec in short term interest bearing or discount debt obligations issued or guaranteed by the Government of Canada or a Province of Canada or a Canadian chartered bank (subject to those investments having a certain minimum rating) pending satisfaction of the Escrow Release Condition, all pursuant to the terms of a subscription receipt agreement (the “Subscription Receipt Agreement”) to be entered into on the closing of the Equity Financing among Stantec, the subscription receipt agent (the “Escrow Agent”), CIBC Capital Markets and RBC Capital Markets.
