IBI Group Inc T.IBG.DB.E

Sale of Innovyze creates sizeable shareholder value

[SweetPete]

The Desjardins Takeaway: Positive

Stantec announced this morning that it has signed an agreement for the sale of its software business Innovyze to the EQT Mid Market US fund for US$270m. This division was part of the MWH acquisition, which was completed in 2016. The sale is expected to be completed in 2Q17. In 2016, Innovyze contributed US$31.5m in net revenue and US$16.6m in EBITDA to STN’s Consulting Services Water business. Net proceeds will be used to strengthen STN’s levered balance sheet (net debt to EBITDA was 2.4x as of December 31, 2016). While this transaction is subject to anti-trust approval and lender consent, we do not anticipate any issues.

Overall, we believe this is a good transaction for STN as it was completed at an impressive multiple (16.3x EV/LTM EBITDA vs the 13.0x where STN is currently trading), unlocking sizeable value for shareholders in our view. In addition, we note that the exclusion of Innovyze’s revenue and EBITDA will be partially offset by the reduction in associated intangible amortization and consolidated interest expense, thus minimizing the impact on EPS. Lastly, we did not believe this division was core to STN’s long-term strategic plan and the sale should allow additional capital to support growth opportunities in its core segments.

We expect a positive reaction in the market, as we believe this transaction was not expected by the Street.