£2 billion engineering consultancy Atkins falls into Canadian hands
British professional services firm Atkins has announced that the SNC-Lavalin Group has completed its £2.1 billion acquisition of the firm. The capture of Atkins, a global design, engineering and project management consultancy, gives SNC-Lavalin a lucrative stake in the international infrastructure, transportation and energy sectors – however, a pensions deficit and projections of falling revenue have led to speculation the Canadian owners may soon cut jobs, as they bid to cover a £870 million loan behind the purchase.
Headquartered in the UK, Atkins is a geographically diversified global company, boasting approximately 18,000 employees spread across the US, Middle East and Asia, together with their leading locales in Britain and Scandinavia. The company’s portfolio notably includes work on the controversial Hinkley Point nuclear power-plant, and Crossrail2 project – a £32 billion project which came under threat after the increasing uncertainty of Brexit and Britain’s recent general election.
Atkins also worked to assist fellow engineering and design consultants Arup for a £416 million overhaul of London’s sewage system, with the Thames Tideway scheme planned to provide a 25-km system aimed at reducing sewage overflows. However, the positive outlook for the firm recently came into doubt after internal sources reportedly confirmed plans for job cuts at the company’s building services division. Atkins claimed the move was a result of “challenging market conditions” where despite their plethora of high-profile public sector projects, a downturn in business was set to cut revenue by £20 million, despite the planned cuts leaking just four days before a merger deal was announced, with employees speculating the two were connected.
The firm’s future had first become the subject of increasing speculation in the first months of the year, following CEO Uwe Krueger’s hint at merger possibilities, stating that the firm needed to grow. Initial attempts by rivals to obtain Atkins were rebuffed, with CH2M Hill having interest snubbed by the firm’s board, however soon after it emerged that the Royal Bank of Canada was advising SNC-Lavalin regarding the financing of a deal, while Atkins was receiving advice from financial service companies Moelis and JPMorgan. The eventual takeover by the Canadian engineering consultancy saw terms include a £20.80-a-share cash buyout, around 35% above the closing share price on the 31st of March, when talks first began. Shares in Atkins actually jumped by over 5% in the aftermath of the agreement however. After talks were announced, the disturbance saw Atkins shares boosted above the offer price during the following Friday afternoon trading, reaching £20.99 as speculation emerged regarding a possible counter bid. Shares eventually closed at £21.02.
SNC Lavalin’s projects already include highways, power plants, train lines and the Champlain bridge from Montreal to the south shore of the St. Lawrence River, but the acquisition of the FTSE 250 company will see them further expand their global footprint. Atkins, who were named in the Sunday Times’ top 100 big businesses to work for in 2017, as well as a top 20 place in the same publication’s list of all business sizes, will meanwhile see physicist Uwe Krueger give up his role as CEO after the completion of the agreement. CFO Heath Drewett is meanwhile expected to continue in his same role at the enlarged company following the merger.
Restructuring ahead
According to the purchasers, Atkins brought in revenues of nearly £2 billion in the 12 months ending September 30th, while earnings before interest, tax, depreciation and amortisation of £173.2 million. The company also has a pension deficit of £424 million, an aspect Stephen Rawlinson, director of UK advisory Applied Value, suggested while a presently weak-pound is incentivising aggressive M&A activity in from foreign investors in various UK markets, it might deter future suitors from acquiring the firm. As their shares continued to soar, he stated there was little doubt that, “the consideration is ahead of where the Atkins share price might get to on [a two to three] year view and the pension deficit is rising, creating a buying deterrent for some UK institutions.”
In the meantime, the sector continues to bear witness to a sustained period of activity. The John Wood Group earlier agreed a £2.2 billion deal for engineering services company Amec Foster Wheeler, while following the initial fall of the pound following the UK’s Brexit vote in 2016, UK consultancy Phoenix Beard was obtained by Savills to grow their real-estate development advisory arm.
SNC-Lavalin themselves acquired UK-listed Kentz Corporation, the oil and gas services specialist, for £1.16 billion in 2014, as the company targets a sustained period of expansion in the sector. This latest deal, which is expected to finally close by September, is being funded through a combination of equity and debt, including a £870 million loan from SNC-Lavalin’s largest shareholder. The company claimed it hoped to realise C$120 million of this by the end of next year through, by the targeted elimination of a number of Atkins’ corporate costs, as well as its entire costs, along with additional expense and operational savings – a statement which has led to growing speculation of large-scale redundancies being planned by the new owners.
A collective consultation process on the job cuts is scheduled to begin in July, with staff affected across 13 locations. Meanwhile 186 building design staff are currently in the process of redundancy consultation with 92 jobs set to be lost at Atkins. Many who had previously thought their jobs were safe despite the takeover are now fearful of further layoffs in order to help SNC-Lavalin cover for the substantial debt it has incurred through its acquisition. Commenting on the recent redundancies, one employee was quoted, “We have been told this has nothing to do with the takeover but that’s very hard to believe.”
