Deal creates £7bn turnover US and European consultancy powerhouse
While SNC Lavalin’s £2.3bn move for Atkins will provide it with what it calls a “more balanced global footprint” it will effectively mean having more clout in Europe and the US, notably in the high-margin world of technical consultancy.
While the Canadian firm has undertaken heavy construction projects for some time in the US – it has worked with ExxonMobil in Texas for years, and undertakes activity in Alaska – Atkins offers it the opportunity to spread itself into more ongoing consultancy work. The UK firm has around 2,500 staff working from more than 75 offices across the US and SNC Lavalin will be in a position to bolt on such expertise and regional spread at a stroke, once the deal completes.
As well as adding significant sparkle to its US business, the deal will give it a chunky boost in Europe. Currently SNC derives around 5% of income from the region; with the Atkins acquisition squared away this is expected to rise to around 20%.
Despite the uncertainty around the UK’s looming departure from the EU, Europe is seeing what business research firm Environment Analyst (ENR) called “buoyant market conditions”, while what ENR labels as being the “key” North American market is seeing a revival after the downturn of 2013 and 2014.
The deal will result in the combined entity deriving 45% of its revenues from North America (down from 54% currently), 20% from both Europe and the Middle East and Africa, and Asia Pacific on 15%. It will also propel the group into the top 10 of global consultancy businesses, currently headed by SNC’s Canadian compatriots WSP.
It will work both ways, with the standalone Atkins in a position to access Canadian markets more effectively, or so SNC believes. It’s not all about geography either; SNC would see the proportion of its revenues derived from oil and gas fall from a current 44% to 32%, once the acquisition completes. Meanwhile infrastructure revenues would rise from 30% to nearly 50%.
This, along with the more even geographical spread, make the case a compelling one for the Canadian outfit.
Analysts see the consultancy industry as consolidating, and while the deal is seen by some as a “bit of a stretch” for SNC – even with a weaker sterling in the wake of Brexit – sector watchers expect it to be well supported.
Atkins shareholders may regard the 35% premium on the share price prior to the bid being announced as too good to pass up. Certainly the firm’s board thinks that to be the case.
|Atkins and SNC-Lavalin - How they size up|
*SNC-Lavalin financials translated as C$1.67 = £1
** SNC-Lavalin shows net income attributable to shareholders
Year-ends - Atkins: March 2016; SNC-Lavalin: December 2016
|Pre-tax profit **||£139m||£152.7m||£291.7m|