SNC-Lavalin aims to ‘turbo charge’ AI capabilities with acquisitions
Atkins megadeal ignites plans to tap into Montreal’s rich technology talent pool
SNC-Lavalin is eyeing tuck-in acquisitions to “turbo charge” its capabilities in artificial intelligence following the closing of its blockbuster $3.6-billion deal for WS Atkins and it may look to Montreal’s burgeoning tech scene for opportunities, the company’s chief executive says.
While the Atkins deal extends SNC-Lavalin’s global reach in engineering services and deepens its consulting capacity, the U.K.based company’s AI capabilities also have SNC CEO Neil Bruce excited.
Atkins was recently involved in developing an updated passenger authentication system using AI at London’s Heathrow Airport and is leading a U.K. research consortium that is exploring autonomous vehicle technology and connected vehicle systems.
In an interview in London following the completion of the acquisition, Bruce lauded Atkins’s operations and said that while another major transaction was unlikely, “tuck-ins” and “bolt-ons” in the AI sphere were a distinct possibility.
“Really good stuff that they’ve developed,” Bruce said. “We can turbo charge that so that we can do it twice as big and three times as fast.”
Bruce said SNC-Lavalin will look to tap the growing technological expertise in Montreal, which has become a hub for machine learning.
“We will probably be looking at taking the Atkins folk and saying, have a look at what’s being developed in Montreal and we can invest in some of that,” he said.
Montreal has developed a rich talent pool for artificial intelligence and machine learning, and both provincial and federal governments as well as private sector firms have invested major sums of money in recent years to develop the city as a hub for the technology.
For example, last September, Ottawa earmarked $213 million to fund AI and big data research at four Montreal post-secondary institutions. Also, the Quebec government has allotted $100 million over five years to develop an AI “super-cluster” in the region.
Meanwhile, the U.K. firm — now dubbed Atkins, a member of the SNC-Lavalin Group — has been investing in its own digital and artificial intelligence capabilities over the last 18 to 24 months, said Lee Woodcock, its global product director for intelligent mobility.
“Intelligent mobility wise, we aim to be a 200-million pound business,” he said. “I think with the acquisition from SNC, then actually, that ambition could fundamentally grow.”
Expanded digital and artificial intelligence capabilities, something SNC-Lavalin’s customers are increasingly seeking, is just one of the ways that Bruce expects the acquisition to transform the company.
“We want to be the No. 1 E&C (engineering and construction) company in the world. And I think ... we’ve moved into the top three,” Bruce said.
The acquisition, which was completed on July 3, is expected to result in roughly $120 million of cost synergies by the end of the first financial year, the company has said.
Headcount reduction will be “very minimal” as there is little overlap geographically or sectorwise between the two companies, Bruce said, adding that the “main bulk” will come from real estate.
Bruce estimates the company can get $30 million in cost savings from SNC-Lavalin and $90 million from Atkins.
The acquisition also shifts the balance of employees in the company, with 19,625 in the Middle East and Africa, 11,350 in Europe and 5,425 in the Asia-Pacific region, compared with 16,600 in the Americas.
Achieving that geographic balance was deliberate, but Bruce said there are no long or short-term plans to relocate its headquarters from Montreal.
One advantage of being located in Canada is the ability to tap its local network, he said, as evidenced by the financing agreement it struck with Caisse de Depot de Montreal to fuel the Atkins acquisition. Caisse is providing a loan of $1.5 billion against the proceeds of the Toronto toll-road Highway 407, in which SNC-Lavalin has a 16.77 per cent stake.
This arrangement with Caisse enabled SNC-Lavalin to acquire Atkins in an all-cash deal — preserving its BBB credit rating and in turn its access to private-public partnership deals with the government, he said.
“If we were based in the U.K. or based in the U.S., that just wouldn’t be available,” Bruce said.
Meanwhile, SNC-Lavalin has already sold and leased back its Montreal headquarters for the next 20 years. Also, last month, it announced the launch of a new infrastructure investment vehicle, which will allow the company to sell an 80 per cent interest in a portfolio of its mature Canadian infrastructure assets.
The aim is to free up capital, which can go towards new projects and bolt-on acquisitions, Bruce said. It’s all part of an overarching move in recent years to derisk the company and diversify its operations away from oil and gas and toward infrastructure and consulting.
Still, as much as SNC-Lavalin aims to move forward, the past still lingers.
A fraud case involving several former SNC-Lavalin executives charged in relation to the company’s contract to build a $1.3-billion Montreal hospital are set to be back in court on Sept. 27, roughly five years after charges were first laid.
Bruce said it’s “frustrating” that “there’s a lot of publicity that’s largely about the former employees as opposed to SNC-Lavalin.”
He reiterated his call for delayed prosecution agreements (DPAs) in Canada, which have been used in the U.S. and the U.K. as a way to defer prosecutions for corporations and give them a window to improve their business practices.
Without DPAs, SNC-Lavalin must combat the stigma that comes with facing charges putting them at a disadvantage when bidding on certain projects.
The current case could take another five years to move through the court system, a prospect Bruce calls “painful.”
“We have changed the management, we’ve changed the systems, processes,” he said. “We’ve got world class systems in place, we’ve got an internal monitor who checks all of this ... It’s sort of time for us to move on.”