Stantec Buy of Quebec Designer Dessau Points to Province Market Strength, Despite Ethics Lapses
This story was updated to reflect new story developments.
The Sept. 24 announcement by Alberta design firm giant Stantec that it intends to acquire most of Dessau Inc. signals that both the Quebec engineer and the province are moving beyond ethics lapses in municipal construction that have tarred them over the last two years.
Stantec said it would buy Dessau's "engineering assets" in Quebec and in certain Ontario locations for an undisclosed amount.
The deal would involve 1,300 employees added to Stantec's total of about 14,000, with only 70 now in Quebec. The deal does not appear to include Dessau's construction arm, Verreault, that the engineer acquired in 2008.
Set to close in early 2015, the purchase would provide Edmonton-based Stantec with a solid provincial presence at a time when infrastructure work is set to accelerate in Quebec—now that a Canadian federal ethics probe completed on Sept. 9 a key two-year phase of testimony.
"For many years, we have looked at Quebec as an attractive opportunity for further growth," says Bob Gomes. Stantec president and CEO. "Over the past two years we believe the opportunities have evolved to a point where we are comfortable and confident in expanding in this market."
Moving On
The Charbonneau Commission heard from close to 200 design-firm and contractor executives and employees, union and government agency officials, and politicians on corruption in Quebec's public-works sector.
Many of the witnesses pointed to involvement of firms and public officials in a province-wide conspiracy of price colluding, campaign fraud and bid rigging.
"For now, the market has moved on from Charbonneau," says Maxim Sytchev, construction-sector analyst for Toronto-based Dundee Capital Investments. He says Quebec remains an appealing market with some key infrastructure work ahead.
Stantec "is entering the geography at arguably the best time in decades," says Sytchev, adding that "the need to spend is definitely there" and that the province "will start playing catch up to a more normalized level" of infrastructure investment.
Quebec has almost 25% of Canada's population, with a long-term provincial infrastructure budget of about $90 billion, analysts say.
Dessau is now part of teams vieing for two multi-billion-dollar construction projects under way in Quebec—the Champlain Bridge and Turcot interchange replacements in Montreal, which Sytchev terms "elephant projects investors are tracking at the moment in Quebec."
The acquisition will enable Stantec to participate in the bidding, says a Sept. 25 report by Zack's Equity Research.
Turbulence
The purchase by Stantec follows some recent turbulence for Dessau.
Jean-Pierre Sauriol resigned last year as president and CEO, following bribery allegations involving a relative who worked at the firm.
In its most recent Top 500 Design Firms filing to ENR, in 2013, Dessau had reported a total of $775 million in 2012 global design revenue, with $685 million in Canada. But it had been dropped for several months in 2013 from Quebec's list of eligible public-works contractors and forced to lay off 20% of staff, according to Zack's.
Company executives did not respond to a request for comment, but, in a late 2013 announcement of the firm's renewed certification to work in Quebec, Isabelle Jodoin, now president and general manager, said the firm has "learned from the trying events of the recent past" and has "deployed significant efforts to overhaul our governance framework."
In the acquisition announcement, Jodoin said the firm is "eager to embark on this next stage of evolution for Dessau."
Sytchev says the Dessau purchase will add to Stantec's capabilities in healthcare, water, power and energy, transportation and community development sectors, while providing new expertise in telecommunications and security services.
Transparency
