Stantec (TSX:STN) will add 1,300 employees at 20 offices throughout Quebec as well as Ontario. The value of the deal wasn't disclosed but Stantec said the acquisition will add about $130 million in annual revenues.
Dessau recently came under scrutiny during the corruption inquiry over illegal financing of political parties but Stantec won't be responsible to pay any fines or penalties applied to Dessau.
Stantec chief executive Bob Gomes said the expansion in Quebec comes at a perfect time and Dessau has expertise in a variety of sectors including water, power, energy and infrastructure, while adding telecommunications and security services.
"Their team has gone through a difficult situation in the past two years. However, they have come through these events as a better, stronger and more engaged group and we're proud to include them in the Stantec team," Gomes said during a conference call with analysts.
Dessau was temporarily denied access to public contracts by the Autorite des marches financiers on advice of the province's police anti-corruption squad. Members of the Sauriol family who helped found Dessau in 1957 left the company more than a year ago.
With nearly 25 per cent of the Canadian population and a long-term $90 billion provincial infrastructure budget, the Quebec expansion builds Stantec's geographic presence without any overlap and helps to improve the services it can bring to its national clients, Gomes said.
Stantec also hopes to take advantage of Quebec's strong public-private partnership opportunities in transportation and civil projects.
"It is and has been a large infrastructure market and we are confident the timing of our entering is appropriate to the evolution of Stantec as well as for the engineering and construction industry in Quebec."
The acquisition is the latest in a wave of global consolidation in the engineering sector and the sixth so far this year. It follows recent deals by WSP Global (TSX:WSP) and SNC-Lavalin (TSX:SNC).
Industry observers said it was a good deal for the Edmonton company.
"The market has been itching for Stantec to make a larger acquisition given company's stellar track record, very strong balance sheet and high trading multiple," wrote Maxim Sytchev of Dundee Securities.
He said Stantec is expanding its Quebec presence at the best time in decades, coming as spending on large projects is expected to return to normal levels following the fallout from the province's corruption inquiry.
Dessau president Isabelle Jodoin said the sale of the engineering operations was a direct result of the legal issues that have surfaced over the past few years that culminated in the testimony of some former senior executives at the corruption inquiry.
"Everything that is happening now is a direct result of the actions that happened at that time," she said in an interview. "We wished that these things never happened so we would preserve the way we were."
Gomes said the transaction won't result in any cost savings and will lead to job hirings.
"So we're definitely looking forward to this growing immediately out of the gate. We don't see any further rationalization or reduction in staff being necessary."
The addition of Canada's fifth-largest engineering firm will push Stantec to No. 2 spot behind SNC-Lavalin.
Ben Vendittelli of Laurentian Bank Securities said the deal is strategic for Stantec.
"The company lacked a presence in the province of Quebec and the acquisition fills in the missing gap," he wrote.
Stantec has more than 14,000 employees around the world, including some 8,000 across Canada. The company has operated in Quebec since 1999 and has 70 employees at its Montreal office.
On the Toronto Stock Exchange, its shares closed at $74.31, up $3.54 or five per cent in Wednesday trading.
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