Quebec diagnostic tech consolidator Eddyfi looks to build M&A warchest after closing $350-million deal with Roper

One of Quebec’s emerging corporate champions, infrastructure diagnostic testing technology provider Eddyfi NDT Inc. is looking to raise up to US$500-million after closing its 11th acquisition in five years.

Eddyfi last week completed the purchase of Zetec from Sarastoa, Fla.-based Roper Technologies Inc. for US$350-million, the latest effort by the Quebec City company to consolidate its fragmented industry. Eddyfi uses a mix of software and hardware technology to test pipelines, power plants, refineries and other infrastructure for cracks and defects. Zetec, based near Seattle, is in the same business, known as “non-destructive testing,” serving power generation and aerospace operators.

Eddyfi is one of a slew of Canadian technology companies that have gone on a global buying binge. Other recent acquirers of foreign companies include Dye & Durham, Lightspeed Commerce, Coveo Solutions, SemiosBio Technologies, Clio, FreshBooks, Magnet Forensics and Intelerad Medical Systems. They contributed to a record number of cross-border deals for the sector in 2021, according to Refinitiv.

“I know a lot of [Canadians] sold their businesses to the first American that came with their chequebook” in the past, Eddyfi chief executive officer Martin Thériault said in an interview. “It’s good to be building a business that buys” abroad instead.

It has also helped to have Quebec’s biggest financiers behind him, similar to the support enjoyed by other Quebec tech firms, including Lightspeed and Nuvei. Mr. Thériault, a mechanical engineer and industrial executive-turned-entrepreneur, founded Eddyfi in 2009 and self-financed the company until 2017, when he raised $36.5-million from the Caisse de dépot et placement du Québec. Three years later he raised another $600-million in debt and equity from the Caisse, private-equity firm Novacap LP, National Bank of Canada and the province’s Investissement Québec arm. That funded Eddyfi’s 2020 acquisitions of European pipeline inspection companies NDT Global and Halfwave AS, which tripled its annual revenue to $300-million

Eddyfi financed its latest deal with debt, underwritten by National Bank, with IQ chipping in US$60-million. “Our government is proud to assist [Eddyfi] with this acquisition” through IQ, provincial Economy and Innovation Minister Pierre Fitzgibbon said in a release. IQ CEO Guy LeBlanc stated: “As part of our commitment to strategic sectors of our economy, our teams support Quebec companies every day with their growth and market development projects outside our borders.”

The Zetec acquisition has a personal angle for Mr. Thériault: He used to head its Canadian operations and left in 2009 after it downsized operations here. He started Eddyfi to fill the gap it left in the Canadian market with Zetec’s blessing “because I was taking care of their problem,” he said.

“We were less than $1-million [in revenue] 12 years ago” at Eddyfi, he said “Now we’re five times the size” of Zetec. He described the price for Zetec as “stiff, but because we were a strategic buyer and knew the business, it made sense for us.”

Zetec generated US$64-million in revenue in the 12 months through last August and had operating earnings of US$17-million. With the acquisition, Eddyfi will have US$350-million in combined annual revenue and 1,500 employees. Organic revenue from existing businesses is growing by more than 10 per cent, and operating profit as a share of revenue amounts to “better than in the 20s,” Mr. Thériault said. He added Eddyfi expects to achieve US$5-million to US$10-million in annual cost synergies.

Novacap partner David Lewin said Eddyfi is well positioned to consolidate an industry of profitable, stable and modestly-sized companies that can help extend the life span of large-scale assets such as bridges, nuclear power plant dams and other infrastructure assets. That makes it a play in the burgeoning environmental, social and governance space. “We believe these tailwinds are super compelling and they’re applicable to more and more verticals as this infrastructure evolves and ages,” Mr. Lewin said.

Mr. Thériault said he expected Eddyfi would raise US$300-million to US$500-million this year in equity either from private backers or by going public, to repay debt “and position us for growth” through mergers and acquisitions. He said the timing could be dictated by how deals now in the works play out.

Mr. Lewin said Eddyfi will raise funds when “we have a natural reason to do so. … We want to make sure the company is well-equipped and is never in a position where it has a ball and chains to not execute on an amazing opportunity. … Down the road we’ll need to open up the capital to ensure we don’t miss out.”

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