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Pasadena-based engineering and consulting firm Tetra Tech Inc. announced late last month that it had made its biggest acquisition in history: a deal to buy a British environmental consulting firm for $691 million. But not very fast.
Tetra Tech has been acquired by Abingdon-on-Thames-based RPS Group Plc. Because in early August, Montreal, Quebec-based engineering and consulting giant WSP Global Inc. announced an agreement to buy RPS Group for $641 million.
When Tetra Tech’s top offer came in, six weeks later, RPS Group’s board canceled its acceptance of WSP Global’s offer and immediately agreed to Tetra Tech. RPS and Tetra Tech announced their mutual agreement late on September 23.
On September 26, WSP Global issued a statement saying it was “considering its options.” The company may walk away or sweeten the offer, triggering a bidding war.
Amid the looming battle, RPS Group, an environmental and water infrastructure consulting firm founded in 1970, has grown to 5,000 employees and annual revenue of $757 million. While the company has around 100 offices in 12 countries, its focus areas are its home countries of the United Kingdom, the European Union and Australia.
For Tetra Tech, which has expanded rapidly over the past 20 years, the deal to buy RPS Group represents a great opportunity – if it goes through – to expand its water and environmental management practices in these regions.
“The RPS Group advances our long-term strategy to enhance our position as a leading global consulting and engineering firm focused on water, environment, sustainable infrastructure and energy transformation,” said Dan Batrak, CEO of Tetra Tech. September 23 notice of agreement.
If the deal goes through, Tetra Tech will grow from 21,000 to 26,000 employees overnight. Revenue will jump significantly to $3.2 billion by 2021.
After RPS Group’s board approved Tetra Tech’s offer, RPS Group leaders said in the announcement that Tetra Tech offers greater value to shareholders and a better fit with their own company.
“The RPS board is pleased to recommend Tetra Tech’s offer to our shareholders, which provides greater value for their shares,” RPS non-executive director Ken Lever said in the announcement. “Our integration with Tetra Tech provides attractive opportunities and long-term benefits for our partners and global customers.”
RPS Group CEO John Douglas said the deal will allow RPS Group further opportunities to achieve its vision.
“Tetra Tech will provide RPS and its employees with a strong and culturally aligned platform that will create a pre-eminent consulting and engineering firm that addresses climate change and all its impacts.”
Strong competitor
But WSP Global represents a formidable opponent for Tetra Tech if it enters the fray with a sweetened offer. The company is much larger than Tetra Tech: 57,000 employees and 2021 revenue of $8.1 billion. And it has even more aggressive expansion plans: The company said in its 2021 annual report that it intends to double its size over the next several years. It aims to be one of the world’s leading environmental and infrastructure consulting firms.
WSP has made several large acquisitions in recent years, most notably New York-based Parsons Brinkerhoff for $1.3 billion in 2014 and Toronto, Ontario-based Gondar Associates for $1.1 billion in late 2020.
And just three months ago, WSP announced it had agreed to buy Aberdeen, Scotland-based John Wood Group’s environmental and infrastructure business for $1.8 billion. The deal closed on September 21.
Tetra Tech, for its part, has pursued very small deals that are generally strategic in nature and made on a case-by-case basis.
“WSP has an aggressive reputation in M&A, while (Tetra Tech) is historically conservative,” Andrew Whitman, senior research analyst at the Milwaukee, Wisconsin-based investment banking and research firm, said in a Sept. 26 research note.
In the memo, Whitman said he “does not rule out another offer” from WSP Global to RPS Group.
Learn about other recent news from Tetra Tech on page 10.
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