WSP to Acquire MMM, a Leading Canadian Engineering Consulting Firm
WSP Concurrently Announces a $175 Million Bought Deal Public Offering and a $125 Million Private Placement
WSP Global Inc. (TSX:WSP) (“WSP” or the “Corporation”) is pleased to announce that it has entered into an arrangement agreement (the “Arrangement Agreement”) in connection with the acquisition (the “Acquisition”) of all of the issued and outstanding shares (the “MMM Shares”) of MMM Group Limited (“MMM”), one of the largest privately-owned engineering consulting companies in Canada with approximately 2,000 employees. Under the terms of the Arrangement Agreement, WSP will pay an aggregate purchase price of $425 million (the “Purchase Price”), subject to certain closing and post-closing adjustments. Shareholders of MMM may elect to receive part or all of the consideration in the form of shares of WSP. The majority investor indicated that it would elect to receive its consideration in cash. All amounts are in Canadian dollars.
With a national footprint comprising 18 offices across 7 provinces and a strong Ontario (including the Greater Toronto Area (“GTA”)) presence representing approximately 75% of its 2014 net revenues, MMM is recognized for its expertise in transportation, infrastructure & environment, and buildings, its three main operating segments. MMM is also a leader in public-private partnerships (“P3”), more particularly in the delivery of large-scale, complex P3 projects involving transportation, highways, bridges, transit, airports and buildings.
The Acquisition, which is expected to be completed through a plan of arrangement, remains subject to certain customary closing conditions, including court, shareholder approvals (by 66 2/3% of the votes cast by all shareholders and by minority shareholders (i.e. all shareholders other than the majority investor) holding at least 50% + 1 of the shares held by minority shareholders and applicable regulatory approvals. The special meeting of the shareholders of MMM to consider the Acquisition and the Arrangement Agreement is expected to be held in early October and the Acquisition is expected to be completed in the fourth quarter of 2015 (the “Acquisition Closing Date”). Concurrently with the execution of the Arrangement Agreement, the majority investor and certain members of MMM’s senior management team representing approximately 68.86% of all issued and outstanding voting shares of MMM and approximately 12.62% of the issued and outstanding voting shares held by the minority shareholders entered into voting and support agreements with WSP to vote in favour of and support the Acquisition.
- MMM, which generated $264 million in net revenues in the fiscal year ended December 31, 2014, is a 2,000 employee leading private Canadian engineering services firm with broad expertise in transportation, infrastructure & environment, and buildings and a strong presence in the P3 market.
- Following the closing of the Acquisition, WSP is expected to have approximately 8,500 employees (approximately 3,200 of which will be located in Ontario) and net revenues of approximately $1 billion in Canada.
- The Acquisition will allow WSP to strengthen its presence in Ontario and more specifically in the GTA, a market where WSP is looking to increase its market competitiveness.
- The Acquisition provides WSP with the opportunity to increase its leading position in transportation, infrastructure, environment, buildings, resources and energy in its home market.
- The Acquisition would bolster WSP’s presence in the P3 market across Canada, the United States and around the world.
Enhances WSP Presence in Canada with a Strong Ontario Platform
- MMM has a significant presence in Ontario, having generated approximately 75% of its net revenues in Ontario in the fiscal year ended December 31, 2014.
- WSP anticipates to be well positioned to compete for expected upcoming opportunities in Ontario and particularly in the GTA, driven by factors such as aging infrastructure and population growth.
Expands WSP’s Operations in Segments that are Well-Positioned to Capitalize on Growth Opportunities
- In its last fiscal year ended December 31, 2014, MMM generated approximately 80% of its net revenues in the transportation and the infrastructure & environment segments, two key core markets of our global strategy with compelling fundamentals.
- WSP expects MMM’s long-standing relationships with well-established and recognized clients in the transportation segment and its extensive expertise in urban development, community revitalization, municipal infrastructure and geomatics to strengthen WSP’s services offering in these segments in Ontario and across Canada.
- MMM complements WSP’s world-class building expertise in mechanical, electrical and structural engineering services. It also adds commissioning and sustainable development know-how to WSP’s team.
Acquisition of One of the Leaders in P3 Projects with a Strong Active Pipeline
- MMM has extensive experience in P3 projects, particularly in the delivery of large-scale, complex P3 projects, has established relationships throughout the P3 value chain with owners, contractors, consultants and concessionaires and currently has several P3 projects ongoing.
Compatible Corporate Strategy and Culture
- WSP’s management believes that MMM’s core values of integrity, excellence, safety and growth are well-aligned with WSP’s corporate culture, philosophy and strategy and that both management teams share similar values and possess an in-depth understanding of their respective business segments, geographic markets and potential for growth.
Commenting on the Acquisition, David Ackert, President and Chief Executive Officer of WSP Canada Inc. said, “We are pleased to join forces with MMM, which is recognized as a highly successful firm nationally, with a particularly strong GTA market presence. The firm has made itself a name of technical expertise and operational excellence in the transportation, infrastructure & environment and buildings sectors. We also believe that this Acquisition provides a unique opportunity for our clients, employees and shareholders to benefit from MMM’s deep experience in the P3 industry.” He also said: “This Acquisition perfectly fits within the priorities of our Canadian growth strategy, which is focused on becoming a top player across the country, in all the sectors in which we operate”.
Hugo Blasutta, Chief Executive Officer of MMM added, “This transaction supports the realisation of both companies’ strategic aims and provides MMM a strong platform for continued growth both in Canada and internationally. We believe it will provide our employees and our clients with enhanced opportunities and we expect to achieve increased prominence globally in the areas in which we excel. Having been immensely proud to lead MMM for several years, we now look forward to working with the entire WSP team to deliver value to all stakeholders.”
Upon closing of the Acquisition, David Ackert will continue as President and Chief Executive Officer of WSP Canada Inc. Hugo Blasutta will join the corporate team of WSP Global. His focus will be on supporting the Canadian integration process and working on strategic corporate development activities such as operational performance, leadership development, client initiatives and strategies.
Commenting on the Acquisition, Pierre Shoiry, President and Chief Executive Officer of the Corporation said: “We are delighted to welcome Hugo to our executive team and benefit from his vast knowledge, experience and success in our industry. With the addition of MMM, WSP now has an even stronger and attractive global platform of 34,000 people and we anticipate continued consolidation in our industry; we are also pleased with the support of our investors that enable us to maintain a strong balance sheet and respond quickly to opportunities that enhance our technical skills and fulfill our strategic objectives”.
- For the trailing 12-month period ended July 11, 2015, MMM had net revenues of approximately $269 million. Management expects the Acquisition to be immediately mid-single digit accretive to WSP’s earnings per share, assuming the completion of the Offering (as described below) and the Concurrent Private Placement (as described below) and an all-cash Purchase Price, but without considering any revenue or cost synergies, restructuring, integration expenses and transaction related costs.
- Management of WSP estimates that the Purchase Price multiple represents approximately 8.9x the trailing 12-month Normalized EBITDA of MMM for the 12-month period ended July 11, 2015, excluding any revenue and cost synergies.
- Pro forma Net Debt to Adjusted EBITDA (including MMM’s Normalized EBITDA) is expected to be approximately 2x at the closing of the Acquisition, in line with WSP’s target level of 1.5x to 2x, assuming an all-cash Purchase Price.
The Acquisition and other related transaction costs are being financed through a combination of:
- $175 million bought deal public offering (the “Offering”) of common shares (“Common Shares”) of the Corporation (the “Offering Common Shares”) at a price of $42.25 per share (the “Offer Price”) and additional gross proceeds of up to $26.25 million pursuant to an Over-Allotment Option (as defined below);
- $125 million private placement (the “Concurrent Private Placement”) of Common Shares (the “Placement Common Shares”) at a price of $42.25 per share to two existing shareholders, (i) Canada Pension Plan Investment Board (“CPPIB”) and (ii) la Caisse de dépôt et placement du Québec (“CDPQ”) and additional gross proceeds of up to $18.75 million pursuant to the Additional Subscription Option (as defined below); and
- Funds drawn under the Corporation’s current credit facilities.
“The successful completion of the Offering and the Concurrent Private Placement will allow us to complete this Acquisition, which is expected to contribute to both net revenue growth and margin expansion in Canada. Over the past three years, MMM has consistently generated competitive Normalized EBITDA margins and solid organic growth”, said Alexandre L’Heureux, Chief Financial Officer of WSP. “The acquisition of MMM will also enable us to pursue our 2015-2018 strategic plan and help position us as the first choice for clients, partners and employees, while maintaining a strong balance sheet.”
CIBC is acting as financial advisor to WSP. Harris Williams & Co. and TD Securities are acting as financial advisors to MMM in connection with the Acquisition.
Public Offering of Common Shares on a Bought Deal Basis
To finance the payment of a portion of the Purchase Price and related expenses, WSP has entered into an agreement with CIBC, on behalf of a syndicate of underwriters (the “Underwriters”) co-led by CIBC, Raymond James and TD Securities to sell, on a bought deal basis, the Offering Common Shares at the Offer Price. The agreement provides for the issuance of 4,142,000 Offering Common Shares for gross proceeds of $175 million to the Corporation.
In addition, the Underwriters have been granted an over-allotment option (the “Over-Allotment Option”), exercisable in whole or in part at the Offer Price for a period of 30 days from the Offering Closing Date (as defined below), to issue additional Common Shares representing up to 15% of the number of Offering Common Shares issued on the Offering Closing Date for additional gross proceeds of up to $26.25 million. The Offering Common Shares and Common Shares issued pursuant to the Over-Allotment Option will be offered in all provinces of Canada pursuant to a short form prospectus to be filed by WSP in accordance with National Instrument 44-101 – Short Form Prospectus Distributions.
The issuance of the Offering Common Shares pursuant to the Offering is subject to customary approvals of applicable securities regulatory authorities, including the Toronto Stock Exchange (the “TSX”). Closing of the Offering is expected to occur on or about September 16, 2015 (the “Offering Closing Date”). The Offering and the Concurrent Private Placement (described below) are conditional upon each other. The Offering is also conditional upon there being no termination of the Acquisition or announcement of such termination prior to the closing of the Offering.
Concurrent Private Placement of Common Shares
Concurrently with the Offering, WSP has entered into subscription agreements under which the Corporation will complete the Concurrent Private Placement with each of CPPIB and CDPQ. Under the Concurrent Private Placement, (i) CPPIB will acquire, on a private placement basis and at the Offer Price, 1,479,290 Placement Common Shares, and (ii) CDPQ will acquire, on a private placement basis and at the Offer Price, 1,479,290 Placement Common Shares, for aggregate gross proceeds of $125 million to the Corporation.
The issuance of the Placement Common Shares pursuant to the Concurrent Private Placement is subject to the approval of the TSX. Closing of the Concurrent Private Placement is scheduled to occur concurrently with the closing of the Offering (the “Offering Closing”). The Concurrent Private Placement and the Offering are conditional upon each other. The Concurrent Private Placement is also conditional upon there being no termination of the Acquisition or announcement of such termination prior to the closing of the Concurrent Private Placement.
Each of CPPIB and CDPQ has also been granted an option to purchase a number of additional Common Shares representing up to 15% of the number of Placement Common Shares subscribed by each of them on closing, subject to the Over-Allotment Option being exercised by the Underwriters (the “Additional Subscription Option”). The number of additional Placement Common Shares to be purchased by CPPIB and CDPQ pursuant to such Additional Subscription Option will be in the same proportion as the Common Shares that are purchased by the Underwriters pursuant to the Over-Allotment Option, if any, and will represent additional maximum gross proceeds of up to $18.75 million. To the extent it is exercised, the closing of the Additional Subscription Option will be conditional upon the closing of the Over-Allotment Option.
Upon the closing of the Concurrent Private Placement and any exercise of the Additional Subscription Option, each of CPPIB and CDPQ will be entitled to a capital commitment payment equal to 4% of the aggregate purchase price for the Placement Common Shares for which each of them has subscribed (and the additional Common Shares each of them has subscribed pursuant to the Additional Subscription Option, as applicable).
Assuming completion of the Concurrent Private Placement and the Offering and the issuance of all Offering Common Shares and Placement Common Shares, but not the exercise of the Over-Allotment Option or the Additional Subscription Option, (i) CPPIB will beneficially own, or exercise control or direction over, directly or indirectly, an aggregate of 17,302,921 Common Shares, and (ii) CDPQ will beneficially own, or exercise control or direction over, directly or indirectly, an aggregate of 17,467,931 Common Shares (which includes the 15,823,631 and 15,988,641 Common Shares which CPPIB and CDPQ, respectively, currently beneficially own, or exercise control or direction over, directly or indirectly), representing approximately 17.8% and 18.0%, respectively, of the issued and outstanding Common Shares.
Moreover, each of CPPIB and CDPQ has undertaken to have substantially all of the Common Shares it holds participate in the Corporation’s dividend reinvestment plan (the “DRIP”) and to have such Common Shares enrolled in the DRIP for all dividends with a record date on or prior to September 30, 2016. In addition, the Corporation has undertaken in favour of CPPIB and CDPQ that any Common Shares to be issued to any participant under the DRIP will be issued from treasury at a minimum discount of 2% up to and including the first investment period under the DRIP following September 30, 2016.
As previously announced, the Corporation has declared a dividend of $0.375 per Common Share on August 5, 2015 that will be payable on or around October 15, 2015, to shareholders of record as of September 30, 2015 (the “October Dividend”). As the Offering Closing and the closing of the Concurrent Private Placement will both occur prior to the record date for the October Dividend, the holders of newly issued Common Shares pursuant to the Offering, CPPIB and CDPQ will receive the October Dividend as shareholders of the Corporation, should they still hold the Common Shares on the record date.
USE OF PROCEEDS
The net proceeds of the Offering, the Concurrent Private Placement and part of the Corporation’s credit facilities will be used by WSP to finance (i) the Purchase Price payable in respect of the Acquisition on the Acquisition Closing Date and (ii) the costs of the Acquisition. Alternatively, in the event the Acquisition is not completed following the Offering Closing and the closing of Concurrent Private Placement, the net proceeds from the Offering and the Concurrent Private Placement will be used to pay down amounts outstanding under WSP’s credit facilities and for general corporate purposes. WSP completes acquisitions from time to time as part of its strategy to grow the business. The Corporation evaluates potential acquisitions on an ongoing basis. At the moment, WSP is not in a position to confirm whether any of such potential acquisitions will be completed, or if completed, the terms and timing of such acquisitions. If the proposed Acquisition is not completed following the Offering Closing and the closing of the Concurrent Private Placement and the Corporation ultimately proceeds with another acquisition, a portion of the net proceeds of the Offering and the Concurrent Private Placement will be used to finance the purchase price of such acquisition and other related acquisition expenses.
AVAILABILITY OF DOCUMENTS
Copies of related documents, such as the preliminary short form prospectus, underwriting agreement, subscription agreements and the marketing material will be available on SEDAR (www.sedar.com) as part of the public filings of WSP and on WSP’s website at www.wspgroup.com.
This press release contains forward-looking information within the meaning of applicable securities laws. All information and statements other than statements of historical facts contained in this press release are forward-looking information. These statements are “forward-looking” because they are based on current expectations, estimates, assumptions, risks and uncertainties. These forward-looking statements are typically identified by future or conditional verbs or words such as “may”, “could”, “will”, “outlook”, “believe”, “anticipate”, “estimate”, “project”, “expect”, “intend”, “plan” and terms and expressions of similar import. Such forward-looking information may include, without limitation, statements with respect to: the use of proceeds of the Offering and the Concurrent Private Placement, WSP’s and MMM’s expected financial performance, WSP’s business model and acquisition strategy, the completion of the Offering, the Concurrent Private Placement and the Acquisition, the anticipated indebtedness to be incurred under the Credit Facility, the expected Acquisition Closing Date and the anticipated benefits of the Acquisition.
The forward-looking information is based on certain key expectations and assumptions made by the Corporation, including expectations and assumptions concerning availability of capital resources, performance of operating facilities, strength of market conditions, customer demand, satisfaction of all conditions of closing of the Acquisition, absence of exercise of any termination right and the timing and receipt of regulatory approval with respect to the Offering. Although the Corporation believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information since no assurance can be given that they will prove to be correct.
Since forward-looking information addresses future events and conditions, by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, possible failure to realize anticipated benefits of the Acquisition, possible failure to complete the Acquisition, integration of MMM’s business, change of control, potential undisclosed cost or liabilities associated with the Acquisition, increased indebtedness, availability of borrowings, volatile market price, dilutive effects on holders of Common Shares, payment of dividends, organic business growth, joint venture partners, current economic environment, anti-bribery laws and anti-corruption practices.
To the extent any forward-looking information in this press release constitutes future-oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential benefits of the Offering, the Acquisition and the Concurrent Private Placement and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented financial information and financial outlooks, as with forward-looking information generally, are, without limitation, based on the assumptions and subject to the risks set out above.
The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information contained herein is made as of the date of this press release, and the Corporation undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws.
THIS NEWS RELEASE IS NOT AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES AND IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OF WSP, NOR SHALL IT FORM THE BASIS OF, OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT FOR PURCHASE OR SUBSCRIPTION. THE COMMON SHARES OF WSP WILL ONLY BE OFFERED IN CERTAIN PROVINCES OF CANADA BY MEANS OF THE PROSPECTUS REFERRED TO ABOVE. SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THESE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION THEREFROM.
The Corporation and MMM use non-IFRS measures that are considered by companies as indicators of financial performance measures which are not recognized under IFRS and may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable. The Corporation believes these measures are useful supplemental information that may assist investors in assessing their investment in the Common Shares.
Net revenues are defined as revenues less direct costs for subconsultants and other direct expenses that are recoverable directly from the clients.
EBITDA is defined as earnings before financial expenses, income tax expenses and depreciation and amortization.
Adjusted EBITDA is defined as EBITDA excluding costs related to acquisitions and reorganization.
Net Debt to Adjusted EBITDA is a measure of WSP’s level of financial leverage net of WSP’s cash and cash equivalents and is calculated on WSP’s trailing twelve month Adjusted EBITDA.
EBITDA is defined as earnings before financial expenses, income tax expenses and depreciation and amortization.
Normalized EBITDA is defined as EBITDA excluding non-recurring items.
A reconciliation of such Non-IFRS measures to the nearest IFRS measures will be included in the short form prospectus to be filed in all provinces of Canada by WSP.
Founded in 1957, MMM is a multidisciplinary consulting firm creating vibrant and healthy communities through innovative planning, engineering, geomatics, and project management services. With more than 2,000 employees in 18 offices across 7 provinces, MMM utilizes strong client relationships and deep industry knowledge to deliver cutting-edge, personalized, and practical solutions that help its clients seize opportunities, understand and address challenges, identify and manage risks, and navigate relevant regulatory systems.
WSP is one of the world’s leading professional services firms in its industry, working with governments, businesses, architects and planners and providing integrated solutions across many disciplines. The firm provides services to transform the built environment and restore the natural environment, and its expertise ranges from environmental remediation to urban planning, from engineering iconic buildings to designing sustainable transport networks, and from developing the energy sources of the future to enabling new ways of extracting essential resources. It has approximately 32,000 employees, including engineers, technicians, scientists, architects, planners, surveyors and environmental specialists, as well as other design, program and construction management professionals, based in approximately 500 offices, across 40 countries, on 5 continents. www.wspgroup.com
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WSP Global Inc.
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WSP Global Inc.
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WSP Global Inc.
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