WSP Global CEO says SNC-Lavalin scandal 'tainting' his firm, lowering valuation

MONTREAL — The damage to scandal-plagued SNC-Lavalin Group Inc.'s brand is spilling over to that of rival engineering firm WSP Global Inc., its CEO says.

Alexandre L’Heureux said Friday that SNC-Lavalin, which has seen its market value fall by more than 60 per cent since January amid a political scandal in Ottawa, reflects badly on the Canadian engineering sector and is weighing on WSP's stock price.

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"It’s actually tainting us," L'Heureux told The Canadian Press. "When you’re comparing a good performer with less-than-stellar performers, it’s certainly having an impact on our valuation."

L'Heureux isn't alone in his theory.

"Expensive? Think again," said Raymond James analyst Frederic Bastien in a note to investors Thursday. "It is our belief that in recent times, the misfortunes of other Canadian engineering firms have unreasonably dragged WSP's stock price."

The company's market value sits at $8.18 billion, compared with $3.22 billion for SNC-Lavalin.

L'Heureux was quick to dismiss any talk of a merger or takeover of SNC-Lavalin, whose chief financial officer and former CEO have previously outlined a "Plan B" that would see the company spin off assets ahead of a potential criminal conviction.

"They do a lot of construction and we don’t. We are an advisory firm, we’re an engineering firm; they are a contractor. And SNC plays in different markets than we do," L'Heureux said in a phone interview.

"Frankly we believe that actually it would not be good news for our WSP shareholders and employees to have SNC join our ranks," he said.

"Obviously it’s never good news when you have competitors who are going through a rough patch, and it’s certainly not what I’d wish on our competitors."

On Friday, WSP extended its shopping spree with the purchase of Dutch consulting firm Lievense Holding B.V. — WSP's seventh acquisition this year — in a bid to overtake its rival down the street in Montreal.

WSP announced it will pay an undisclosed amount for the deal through available cash and credit facilities.

The 375-employee Lievense firm gives WSP a foothold in the Netherlands and tacks on between $47 million and $56 million in extra annual revenue, according to analyst estimates. WSP's 2018 revenues were $6.02 billion.

The acquisition fits into its goal of rapid expansion over the next couple years. Once a boutique firm called Genivar, the 60-year-old company has swelled to about 50,000 employees from 31,700 at the end of 2014. It aims to eclipse SNC-Lavalin's roughly 50,000 employees with 65,000 workers by 2021, a goal for which WSP is "absolutely" on track, L'Heureux said.

WSP shares rose more than 170 per cent per cent over the past six years — and 87 per cent since October 2016, when L'Heureux became CEO — to hover at around $76 this week.

Its shares rose nearly two per cent or $1.32 to close at $77.60 on the Toronto Stock Exchange Friday.

Though SNC rivals such as WSP and Aecon Group Inc. are poised to gain from the retreating giant, the group of companies also compliment each other with major project partnerships — ground that might otherwise be ceded to foreign competitors.

WSP's other acquisitions this year include the Danish Orbicon A/S — a 500-employee environmental consulting firm — last month and, in August, U.S.-based Ecology and Environment Inc., a 775-employee environmental consulting firm it bought for US$65.1 million.

Earlier in 2019 WSP bought U.S.-based health-care engineering firm Leach Wallace Associates Inc., U.K. consultancy Indigo Planning Ltd., French geotechnical company Sepia and Swiss engineering firm Todt, Gmur + Partner AG.

Thanks in part to a string of recent purchases, the company now counts 16,000 employees in Europe and between 18,000 and 19,000 in North America, WSP said.

Hurdles for WSP and other engineering players remain in Ontario, where spending on public transit, infrastructure and water projects has slowed.

"The backlog of projects in Ontario, this is obviously creating a real slowdown in the province," L'Heureux said, pointing to a "difficult" few months following Progressive Conservative Premier Doug Ford's election in June 2018.

National Bank of Canada analyst Maxim Sytchev said in an investor note last month that "other players" have uniformly expressed short-term concerns due to an apparent pause in spending in Ontario partially attributable to a change in provincial government."

In April, Prime Minister Justin Trudeau accused Ontario's Progressive Conservative government of dragging its feet on vital infrastructure spending, saying the indecision endangered work for the summer construction season.

Premier Doug Ford announced a $28.5-billion plan for four transit projects in the Toronto area last spring, but said the province would only cover $11.2 billion of those costs with Ottawa expected to pitch in for a share.

This report by The Canadian Press was first published Oct. 11, 2019.

Companies in this story: (TSX:WSP, TSX:SNC)

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