Aecon employees on a job site.
Amid Bay Street speculation about who will buy Canadian construction company Aecon Group Inc., AltaCorp Capital is placing an early bet that it will be a large international firm such as Kiewit Corp. or ACS Group.
Aecon, one of the largest engineering and construction companies in the country, confirmed on Friday that it was on the hunt for new ownership. Shares jumped 26 per cent on Friday, even as the company declined to elaborate on its plans or suggest whether it had any particular buyers in mind.
Speculation that Chinese construction companies could be interested was played down by Chris Murray, a managing director of finance firm AltaCorp, in a research note on Monday.
"We believe the most likely pool of buyers are likely construction companies that are intimately familiar with Aecon and its employees and that would also be acceptable to the Canadian government," Mr. Murray wrote.
He cited Nebraska-based Kiewit Corp. and Spain's ACS Group as potential bidders in an auction for Aecon. Both have partnered with the company on recent joint ventures. Among other projects, Kiewit and Aecon won a $1.7-billion contract to redevelop four dams on Ontario's Mattagami River in 2010 and have been working together on Waterloo, Ont.'s light-rail transit system. Two ACS subsidiaries, ACS Infrastructure Canada and ACS Dragados, are working with Aecon as part of a consortium building the $5-billion Line 5 Eglinton rail project in Toronto.
Aecon has also partnered with Montreal's SNC-Lavalin Group Inc. on a number of large projects, including the Eglinton line and a multibillion-dollar refurbishment of the nuclear power plant in Darlington, Ont. However, Mr. Murray suggested Canadian companies such as SNC, WSP Global Inc. or Stantec Inc., are unlikely to be among potential buyers, "as their focus has been increasing toward pure design work and not construction."
Aecon declined to comment on the potential sale. In a news release on Friday the company said, "any transaction would be intended to create shareholder value and enhance the Company's capabilities and growth potential. There can be no assurance that this process will result in any agreement or that a transaction will be consummated."
Whoever the potential buyer, they'll likely have to be large enough to avoid taking on significant debt to acquire Aecon, Mr. Murray wrote. Much of the forward-looking valuation of the company comes from its potential to reap windfall profit from an expected infrastructure push following the introduction of the Canadian Infrastructure Bank.
"We would expect that the buyer would have sufficient means to acquire the company as a whole and would not rely on leverage, as the company, in order to participate in a number of P3 [public-private partnerships] or APD [alternative project delivery] bids is typically required to maintain an investment grade credit rating, ruling out we believe a leveraged takeout by private equity," Mr. Murray wrote.
He expects other potential buyers to emerge in the near future, calling Aecon "an attractive and unique target for most global participants," because of its strong position in the Canadian market and its potential to win several large infrastructure and nuclear projects "in the near term."
Mr. Murray estimates the transaction price will be in the range of $22.60 and $26.50 a share. On Monday afternoon, Aecon shares were trading at just under $17, up from the mid-$14 range during the past month.