ATB Capital Markets analyst Chris Murray expects WSP Global Inc.’s (WSP-T) proposed $975-million acquisition of UK-based consulting firm RPS Group PLC to expand its “environmental capabilities globally while moving the company another step closer to delivering on its 2022-2024 strategic plan.”
In a research note released Tuesday reviewing the deal, which was announced on Aug. 5, as well as the company’s in-line second-quarter results, he did emphasize the valuation and margin profile “make the transaction appear less accretive than prior deals.”
WSP Global CEO eyes more takeovers as company pursues relentless growth
“The proposed transaction is expected to add 5,000 employees and further strengthens WSP’s environmental franchise, primarily in the UK and Australia, while increasing the company’s exposure to consultancy type revenue, which remains a key tenet under management’s 2024 plan,” said Mr. Murray. “Our revised estimates call for net revenue and EBITDA of $11.0-billion and $1.86-billion, respectively, in 2023, in line with WSP’s 2024 targets.
“RPS represents WSP’s second sizable transaction announced since May 2022, reflecting a robust M&A environment coming out of the pandemic. While pro-forma leverage (approximately 1.9 times at Q4/22) could support further deal flow, we expect management’s focus to shift toward integration over the near term given 12,000 employees are expect to join WSP (up 20.0 per cent) by year-end, with the transactions calling for meaningful realization of synergies over the next 24 months.”
Predicting the deal will close in the fourth quarter of the current fiscal year and forecasting a 4-per-cent organic growth rate into acquired revenue, Mr. Murray trimmed his adjusted fully diluted earnings per share estimate for 2022 to $5.13 from $5.32. His 2023 projection jumped to $6.74 from $5.96.
Keeping a “sector perform” rating for WSP shares, he raised his target to $175 from $170. The average on the Street is $181.62, according to Refinitiv data.