DBRS Morningstar Comments on Stantec’s Acquisition of Cardno

DBRS Morningstar notes Stantec Inc.’s (Stantec or the Company; rated BBB, Stable by DBRS Morningstar) acquisition of Cardno Limited (Cardno).

Stantec announced this morning that it has entered into share purchase agreements to acquire the North America and Asia Pacific engineering and consulting groups of Cardno, a global engineering services provider. The assets acquired would increase Stantec’s environmental services activity in the U.S. to 24% from 17% of its total operations in that country. This is a favourable development for the reasons outlined in DBRS Morningstar’s June 10, 2021, commentary “Environmental Project Spending Trends: Opportunities and Risks in the Global Engineering Consulting Sector” and because it enhances U.S. exposure in advance of the forthcoming substantial, multiyear infrastructure stimulus spending. The acquisition would also double Stantec’s headcount in Australia, offering some geographic diversification beyond the Company’s core North American footprint.

The anticipated transaction price of USD 500 million ($620 million) would be financed through a combination of cash on hand and incremental debt and is expected to close by year-end 2021.

From a longer-term perspective, the scale of the transaction is consistent with DBRS Morningstar’s expectations. However, DBRS Morningstar expects the Company to focus on deleveraging following the deal closure and does not interpret today’s announcement as a deviation from the Company’s long-term strategic plan in terms of relative positioning in the global engineering sector or its long-term strategy regarding its financial risk profile. DBRS Morningstar also acknowledges the support to the Company’s business risk profile of adding Cardno’s high-quality personnel and customer relationships, as well as increasing exposure to the accelerating trend in environmental project spending, and some geographic diversification.

Overall, today’s announcement does not affect the Company’s current credit rating.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Companies in the Services Industry (January 29, 2021; https://www.dbrsmorningstar.com/research/372947) which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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