Following reports that Chinese firm CCC International will be buying Canadian construction company Aecon Group Inc. (TSX:ARE) for $1.5 billion, the company’s stock price has risen nearly 18% over the past week as investors price in the value of the acquisition into the company’s stock price.
Amid relatively strong fundamentals, this acquisition should, at least on the face value of the transaction, provide investors with significant short-term value for a firm operating in a relatively difficult, cyclical industry.
The acquisition is set to be reviewed by Canadian regulators due to the size and influence of Aecon on the domestic Canadian construction market. Any time a foreign company buys out a domestic Canadian firm, regulators will need to assess the strategic long-term benefit to Canada – the Trudeau government has proven to be much more receptive to foreign investment, much more so than the previous Harper government which stopped previous buyouts from foreign firms on national security grounds.
Another aspect of the deal investors will be watching closely is how the proposed combined firm is expected to perform in the long-run, given CCC’s global reputation.
In 2009, the firm was put on notice by the World Bank following a bid for a construction contract in the Philippines in which the company was found to have colluded in a bid-rigging scandal which hampered the reputation of the Chinese firm.
While CCC has been successful in achieving high-profile contracts since then, the ability of the combined firm to bid on contracts in the U.S. and other key markets remains a concern for investors who are considering making a purchase of Aecon shares at its current inflated price.
Invest wisely, my friends.
