Los Angeles-based construction and engineering giant AECOM is in talks with Canadian firm WSP Global Inc. about a possible deal, Bloomberg reported Monday night. Media reports said that WSP approached AECOM about the potential transaction, according to sources familiar with the two companies.
Although there is no guarantee that the talks will lead to a deal or how a deal would play out, analyst Andrew Wittmann said in a written research report that he believes the discussions "likely have some merit" for several reasons, including the fact that WSP's stated goals include acquisitive growth, that AECOM stock has inexplicably climbed in recent days and that AECOM leadership is currently transitioning. Chairman and CEO Michael S. Burke announced in November that he will retire this year.
In addition, a deal could help the two firms — which both operate across hundreds of local offices mainly concentrated in North America — save on costs, consolidate real estate, streamline procurement and system investments and help meet AECOM's "very aggressive" F2021 EBITDA guidance, said Wittmann, a senior research analyst with Baird Equity Research's Industrial Services division. While Montreal-based WSP has been growing in recent years with multiple acquisitions, AECOM recently announced the sale of one of its divisions.
The $2.4 billion sale of AECOM's Management Services business to two private equity firms is expected to close in the first quarter of 2020, and the company’s Civil Construction business is also on the block, analyst Michael Corelli, vice president and senior credit officer for Moody's Investor Service, told Construction Dive.
In June, Starboard Value LP, an AECOM investor that owns approximately 4% of the company's common stock, called on the board of directors to consider selling its construction services unit, according to a letter from Peter Feld, Starboard's managing member. Company leaders said they would review the letter.
Meanwhile, WSP's acquisitions of U.S.-based construction and engineering firms go back several years. In 2018, WSP bought Berger Group Holdings Inc., parent of the group of companies operating under the umbrella name of Louis Berger, a Morristown, N.J.-based international professional services firm, for $400 million, according to ENR. And in 2014, it acquired New York City-based Parsons Brinckerhoff for about $1.4 billion.
In recent days, WSP closed an acquisition in December of Lancaster, N.Y.-based environmental consulting firm Ecology and Environment Inc., a 775-employee, publicly traded company that works with governments and private customers worldwide, including the EPA and U.S. Army Corps of Engineers. The $65 million deal included a special dividend of approximately $2.2 million, according to a press statement.
At the time of the announcement, WSP U.S. president and CEO Lou Cornell said that the transaction would enable the firm to "fulfill its strategic ambition of enhancing our activities in the United States."
WSP provides engineering and design services to clients in the transportation, infrastructure, buildings, environment, power and energy industries, according to its website. The company employs approximately 50,000 employees, including approximately 10,500 in the United States.
WSP is part of LaGuardia Gateway Partners, the team designing and building the $3.6 billion Central Terminal B at LaGuardia Airport in New York City, one of the largest public-private partnerships (P3) currently undertaken in the U.S.
Representatives for AECOM and WSP didn’t immediately respond to Construction Dive's requests for comment.