SNC-Lavalin to buy U.K.-based Kentz for $2.1B
MONTREAL – SNC-Lavalin Group Inc. increased its presence in the booming global oil and gas industry Monday with the $2.1-billion acquisition of U.K-based Kentz Corp. Ltd.
It is the first big acquisition for SNC-Lavalin CEO Robert Card, who was hired after the engineering firm disclosed financial irregularities two years ago that led to the departures of several top executives, including its former chief executive.
“I’d like to say that the combination of our two businesses will allow us to bring a wider variety of the very best services in the industry, no matter where you operate around the world,” Card told a conference call Monday to discuss the deal.
“We’ve made SNC-Lavalin a more efficient, integrated and client-focused company while enhancing our ability to deliver the highest ethics and compliance performance. So Kentz is a natural fit with our business.”
Kentz’ clients include major oil companies such as Exxon Mobil, Shell, Chevron, Syncrude and Apache.
Card has been rebuilding the company’s reputation and working to make it a top global engineering company by increasing the services it provides to the oil and gas industry.
“Over the last decade, it has been the most attractive sector,” he said later in an interview, noting the energy industry has provided the “best growth” and the “highest margins.”
Kentz has operations in Western Canada, the United States, the Middle East and the Asia-Pacific region. The British company also has expertise in providing services in the fields of liquefied natural gas and shale gas, both growing areas.
Card said the acquisition will make SNC-Lavalin an “awesome competitor” with about $10 billion in annual revenues and 44,500 employees.
“This is a growth story,” Card said, adding that more employees could be hired. “By and large, this is a building acquisition and not one that will achieve value by having lots of people lose their jobs.”
SNC-Lavalin’s focus may see it sell other assets, such as its stake in Ontario’s Highway 407, he said. The company recently sold AltaLink, Alberta’s largest regulated electricity transmission company, to a subsidiary of Warren Buffett’s Berkshire Hathaway for $3.2 billion.
He also said he wouldn’t rule out SNC-Lavalin (TSX:SNC) making some “niche-type” acquisitions in the oil and gas industry.
But Card said the Kentz acquisition is major.
“I think this really sets the foundation, though, for us. We’re not in a hurry to do something else in any area. We’ve got to digest this, but if something were to come along to enhance the oil and gas portfolio we’d take a hard look at it.”
National Bank Financial analyst Leon Aghazarian said the acquisition is in line with SNC-Lavalin’s strategy of becoming a top engineering and construction firm with a leadership position in the oil and gas industry.
It will allow the company to increase its oil and gas revenues to 24 per cent from seven per cent, Aghazarian said in a note to clients.
Analyst Maxim Sytchev of Dundee Securities said Kentz is the “best asset we believe the company could find in the current environment.”
Kentz is a “high performing asset” and balances SNC-Lavalin’s geographic mix, he said in a note.