Stantec Inc. has snapped up engineering firm Morrison Hershfield, the latest in a string of acquisitions and broader growth that have boosted the company's presence in Canada and across the globe — as well as its stock.
The design consulting company's share price rose 1.82 per cent on Tuesday to $106.94, its highest-ever closing price. Over the past year, the stock has surged 62 per cent.
Stantec's purchase of the 1,150-employee outfit enhances its presence across North America, where Morrison Hershfield has 22 offices, plus one in India. Founded in 1946, the Markham, Ont.-based company works in transportation, buildings and environmental services, with a particularly large footprint in Canada.
The addition increases Stantec's headcount by 10 per cent, according to RBC Dominion Securities analyst Sabahat Khan. In Ontario, it will double Stantec's transportation footprint — key to highway, bridge and construction contracts, just as the province looks to build the 52-kilometre Highway 413 just north of Toronto, among other major road projects.
The deal marks Stantec's second hefty acquisition in two months, as the Edmonton-based firm launches a three-year strategic plan to increase net revenue by roughly 60 per cent.
In November, it announced the purchase of the 645-employee German infrastructure firm Zetcon Engineering. In June, it signed a deal to buy the 270-person Environmental Systems Design, headquartered in Chicago.
Stantec has snapped up 14 companies — including Morrison Hershfield — since September 2020, expanding from about 22,000 workers that year to some 28,000 currently. Many of the deals were for environmental consulting firms, from Texas to Australia and the Netherlands.
Desjardins analyst Benoit Poirier said he does "not expect these M&A announcements to slow down" anytime soon, calling the latest buy "a nice tuck-in to start the year."
The growth spirit is not unique to Stantec. A spate of acquisitions has consolidated the engineering consulting landscape in Canada, as companies such as WSP Global acquire firms left and right while even AtkinsRéalis — formerly SNC-Lavalin and recently in retreat — shifts to growth.
Montreal-based WSP picked up at least four companies last year, and its biggest ever — U.K.-based John Wood Group — in 2022. Asked whether the buying spree was a barrier to future purchases, CEO Alexandre L'Heureux told analysts in November: "Absolutely not."
Stantec's third quarter marked the best three-month period in its 70-year-old history, setting company records with profits of $103.9 million, revenue of $1.32 billion and earnings per share of $1.14.
More than half of Stantec's net revenue flows from the U.S., while roughly a quarter stems from Canada.
“We are thrilled to bring a firm of Morrison Hershfield’s stature into the Stantec fold,” CEO Gord Johnston said in a release Tuesday.
"Stantec and Morrison Hershfield have a similar history from our roots in the Canadian market, growing and diversifying services both by geography and service line. And, importantly, our values and culture are very well aligned.”
Financial terms of the deal were not disclosed. Analysts estimated a purchase price of between $250 million and $300 million.
Expected to close in the first quarter of this year, the acquisition is subject to court, regulatory and Morrison Hershfield shareholder approvals.
This report by The Canadian Press was first published Jan. 9, 2024.
Companies in this story: (TSX:STN)
Christopher Reynolds, The Canadian Press
