Engineering consultant Tetra Tech Inc., Pasadena, Calif., said it has reached a deal to acquire U.K.-based environmental firm RPS Group for 222 pence per share, converting to about $695 million, exceeding WSP Global’s previous offer of 206 pence per share, equal to about $646 million—for a premium of 7.8%. Tetra Tech says the all-cash transaction, set to close in the fourth quarter, would be the company's largest acquisition and boost its employee roster to 26,000.
Observers speculate that WSP, which has executed several acquisitions recently, would make a counter offer to add RPS capabilities. In a Sept. 26 online statement, WSP said it is "considering its options ... and a further announcement will be made in due course."
Joining Tetra Tech represents a “highly attractive combination” for RPS as the company aims to “meaningfully contribute to the world’s most challenging problems in energy transformation and water management,” said CEO John Douglas in a Sept. 23-statement about the deal. Both firms focus on earth and environmental engineering services.
Tetra Tech Chairman and CEO Dan Batrack says the RPS client base would help establish a European Union practice for the company and advance its global consulting operations.
The competing offer for RPS may trigger a bidding war with WSP as the global design and professional services giant scales up its environmental services business line rapidly through acquisitions, said Andrew J. Wittmann, senior research analyst at Robert W. Baird & Co., in a Sept. 25 research note.
"RPS appears an excellent strategic fit, though the purchase price appears elevated by [Tetra Tech] standards," he said, noting that the U.S. firm has been "historically conservative" in its acquisition strategy. "We don't rule out another WSP offer either," Wittmann said.
WSP recently completed a $1.8-billion deal to purchase Wood Group's environment and infrastructure consulting business.
For RPS, both potential buyers are strategically a good fit since they each have a stated strategy to increase their environmental services work, Wittmann told ENR.
"In many ways, RPS is a smaller version of Tetra Tech that does what Tetra Tech does to a larger extent in the UK and Australia," he explained. On the other hand, WSP is "aiming for 70,000 people, and RPS is an important step in [the] journey to do that."
Wittmann said market performance after WSP's response to Tetra Tech's deal announcement seems to indicate an expectation of another offer from the Montreal-based giant.
"From a high level, there has already been a lot of consolidation in the industry, where the midszed firms like RPS have been substantially consolidated into larger organizations," said Wittmann. "So the hunting grounds aren't as fertile as maybe they were not that long ago. If WSP is to meet its stated goals, there is a scarcity value that this company brings ... that will meet those goals quickly."
Wittmann noted that WSP recently raised $673 million in an equity offering to finance recent pending acquisitions, including RPS and the just-closed similarly sized purchase of John Wood Group's environment and infrastructure unit.
WSP's 2020 acquisition of major sector consultant Golder and Stantec's purchase of MWH in 2016 "brought scale-players into Tetra Tech's industry-leading water and environmental markets," he said. "Our estimates remain unchanged, awaiting transaction certainty and closing."
According to Wittmann, "RPS began trading above value on Tuesday morning. So the market is thinking that there is another offer coming."