WSP takeover analysis: Too good to be true?

“Another one bites the dust. And another one gone, and another one gone” as John Deacon wrote in his eponymous ditty; he’s the bass player in Queen that no one can remember the name of. In any event WSP, as an independent entity, has a dry mouth this morning having been bought by a Canadian consultant - Genivar - that no has ever heard of. WSP also joins that select band of UK domiciled white collar construction consultants who have been bought by international buyers. This includes Currie & Brown, Davis Langdon, EC Harris, Scott Wilson etc etc.

At first flush, my personal benchmark of Offer Price-to-Sales looks light at 39%. Even in bad days (like now) one would have hoped for 50%; while in days of yore it was north of 100%. In those days, too, WSP’s share price was north of £7, which compares with today’s agreed offer of £4.35 and an average of 78% less than that over the last six months.

Further down the profit and loss account, though, the multiples looks much better - given that WSP it not as profitable as it used to be. For example, the exit is at 8.4 times ‘clean’ operating profit or EBIT (i.e. Earnings Before Interest & Tax) plus a Price Earnings Ratio (PER) of 13.0x. Both are more respectable in today’s climes, as is a Price to Book or NAV (Net Asset Value) of 1.6 times.

Okay, Genivar maybe smaller in headcount and revenue, but its market value is approaching twice that (i.e. 185%) of WSP’s. And, it has a PER of 15.7 times (according to Bloomberg) plus a price to sales of 1.0x and Price to Book of 1.6x - which is why it can afford to do it.

Given that no one has ever heard of it, it is also sensible that Genivar is prepared to prefix its own name with WSP. Indeed, why pay all that money for a brand and then discard it? And although WSP has fallen from its perch, it remains a very good and well thought of company in the industry (if not unanimously in the City). Furthermore Chris Cole (diminutive but feisty) is to be executive chairman (I repeat “executive”) of the newly enlarged entity; and all his executive directors also keep their jobs. Is this too good to be true? In fact if I was in their shoes, I would be checking daily that the lock on the boardroom had not been changed, especially as the first anniversary of the takeover approaches.

Nonetheless, Cole is probably singing: “…yes I’m ready for you. I’m standing on my own two feet”.

My final thought is the one I always have whenever these events occur. British consultants are still fancied by Johnny Foreigner. And although nearly all the business acquired so far have international interests, they also have a core at home in the UK. This means, the buyers are looking through the Nation’s current malaise(s) to the sunny uplit lands.