Desjardins Securities - Buy Rating $95WSP Global Inc.‘s (
WSP-T) recent $502-million equity issuance is “
opportunistic financing” that provides financial flexibility to further pursue a potential combination with AECOM (ACM-N), said Desjardins Securities analyst Benoit Poirier.
In a research note released Thursday upon resuming coverage of the Montreal-based professional services firm, Mr. Poirier said he prefers a “merger of equals” to a pure takeover, emphasizing the value that would be created by a deal and that a combination “makes sense strategically and financially.”
In early April, it was reported the two companies ceded discussions on a potential deal due to the impact of the COVID-19 pandemic.
“Our extensive analysis of ACM’s Professional Services business reinforces our view that a combination with WSP would make sense given the complementary nature of their respective businesses,” he said. “Based on our analysis, we believe a merger of equals is preferable to a pure takeover of ACM by WSP. In a merger scenario, we derive EPS accretion of 31 per cent and 43 per cent, respectively, based on our 2021 and 2022 estimates. We derive a value of $115–122/share based on our merger-of-equals analysis.”
“We support an eventual combination for the following reasons: (1) potential value creation would be significant in the long term; (2) opportunity to expand into strategic end markets; (3) ability to build scale in key international markets to improve profitability; and (4) better position the combined entity to emerge stronger from the pandemic.”
Mr. Poirier does not expect a deal until the pandemic passes, and, however, he said “stars are aligned for a potential combination in the medium term.”
“Despite WSP’s recent financing, we expect management to maintain its disciplined approach,” he said. “Nevertheless, we believe the necessary conditions for a potential merger between WSP and ACM are in place given the restructuring undertaken by ACM since 2018.”
Though he trimmed his 2020 and 2021 adjusted earnings per share projections for WSP, Mr. Poirier reiterated a “buy” rating and $95 target for its shares. The average on the Street is $97.09.
“With more than 120 acquisitions since its IPO in 2006, WSP has a robust M&A track record and we remain confident in its ability to unlock shareholder value in the long term even if a combination with ACM does not occur,” the analyst said.