Before the novel cononavirus put an abrupt end to business as usual this spring, Alexandre L’Heureux was working on the biggest deal of his career.
In January, the chief executive at Montreal-based engineering company WSP Global Inc. was reportedly holding takeover talks with Los Angeles-based rival Aecom, a deal that could have come with a US$7-billion price tag. The pandemic scuppered any courtship – neither side confirmed negotiations, but Aecom is facing activist pressure to sell itself or some of its business units. Mr. L’Heureux’s priorities shifted to ensuring his company’s 50,000 employees could work safely while helping clients, including Canadian and British hospitals that needed temporary wards, and the U.S. Postal Service, which is using WSP’s decontamination and disinfection services.
This month, Mr. L’Heureux signalled he’s once again focused on expansion, raising $572-million in a share sale backed by two of Canada’s largest institutional investors. The successful financing – one in a string of recent Canadian equity offerings – shows fund managers are now looking past the pandemic and are willing to commit money to companies with ambitious growth plans.
During the early stages of the pandemic, in April and May, corporate executives pitched stock sales as defensive moves. They were raising money to survive a storm. That was the tone of a $575.6-million offering in late May from Air Canada. Chief financial officer Michael Rousseau said: “This important financing will allow us to keep our strong relative position and better manage debt leverage and risk as government restrictions are lifted and the market recovers.”
WSP, on the other hand, made it clear the company was playing offence in early June when it announced plans to sell $437-million of shares to public investors, and an additional $64-million of stock to the Caisse de dépôt et placement du québec and Canada Pension Plan Investment Board (CPPIB). Mr. L’Heureux said the money “will further position WSP with a stronger balance sheet, affording us with maximum financial flexibility to continue to pursue our strategic ambitions by seizing upon various opportunities that will arise from the accelerated changes to our industry.”
To ensure potential investors got the message, CPPIB global head of active equities Deborah Orida chimed in with a quote in the press release that said: “We are pleased to support WSP in its pursuit of new growth opportunities.” The investment banks selling WSP shares, led by CIBC Capital Markets, National Bank Financial and TD Securities, found this theme resonated with investors and eventually increased the total size of the offering to $572-million.
While stock indexes have staged an impressive rally since the pandemic-inspired downturn in late March, the institutional crowd continues to see opportunities to go bargain shopping by committing cash to companies such as WSP, which are expanding their businesses and still trade well below prices seen in February. Investors are also willing to jump on stocks that are on a hot run – Ottawa-based online retailer Shopify Inc. raised US$1.5-billion in early May.
Large, well-received share sales from Air Canada, WSP and Shopify reflect the way institutional investors prefer to put their money to work. In most equity offerings, the company sells new shares at a discount to where the stock is trading. For fund managers who measure performance in fractions of a percentage point, the chance to buy a big stock position on the cheap is always enticing. WSP, for example, sold shares at $86 at the end of a day when the stock closed at $88.83 on the Toronto Stock Exchange.
Institutional investors expect to put more money into stocks, which means more share sales are likely. The consulting firm Brendan Wood International surveys fund managers each month, and reported in May that 92 per cent of institutions expected to be net buyers of equities over the next three months. Two-thirds of the fund managers predicted stock market benchmarks will hit new highs in the next six to 18 months. That bullish sentiment will be welcomed by CEOs looking past the pandemic and seeing opportunities to build their businesses.
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Andrew Willis