Terracon Sell-Side M&A Advisory Project

#Investment Thesis

Our analysis recommends a sell-side advisory for Terracon with a proposed acquisition price of $1.54 billion, reflecting a comprehensive and market-aligned valuation based on our rigorous analysis.

I embarked on an intensive project focused on the sell-side management of Terracon, a company known for its diversified market presence and engineering consultancy services. This project provided us with a comprehensive understanding of mergers and acquisitions (M&A) and the intricacies of managing such high-stake transactions. Here’s a detailed look into our project, which I am proud to feature in my portfolio.

Summary of Transaction: We proposed a selling price of $1.54 billion for Terracon, highlighting the company’s EBITDA of $147 million and a pre-COVID growth rate of 13%. These metrics underscored the company’s robust financial health and potential for future expansion.
Company Overview: Terracon operates with a diversified business model, offering a range of engineering consultancy services. This diversity allows the company to mitigate risks associated with market fluctuations and leverage various revenue streams.

Summary of Meta Platforms Inc. Investment Thesis

#Industry Analysis

In our analysis of the engineering services industry for Terracon, it’s important to understand the major players and how Terracon compares favorably. Terracon distinguishes itself in the engineering services industry through several key factors that enhance its valuation:

Terracon’s diversified service portfolio allows it to cater to a wide range of client needs, reducing dependency on any single market segment and providing a stable revenue base.
The company’s current valuation reflects significant growth potential, particularly through operational efficiencies and market expansion strategies. This potential makes Terracon an attractive investment at its proposed price of $1.54 billion.

Discounted Cash Flow (DCF) Model for Meta Platforms Inc.

#DCF – Terminal Growth

This DCF terminal growth analysis underscores Terracon’s substantial valuation range and its potential for significant returns, making it an attractive acquisition target. Additionally, there is potential for a strategic shift from a project-based model to a recurring revenue model. Implementing sticky contracts for quarterly inspections of systems or properties would offer much more predictable revenue streams.

Various growth rates from 1.0% to 2.5% were analyzed to reflect different future scenarios.
Discount rates ranging from 8.0% to 11.3% were used to calculate the present value of future cash flows, providing a spectrum of risk assessments.
The implied EV varies significantly based on the growth and discount rates, showcasing the sensitivity of the valuation to these parameters.
Depending on the selected growth and discount rates, the valuation of Terracon spans from approximately $1.3 billion to over $2.5 billion, highlighting the robust investment potential.

#Precedent Transactions

In our valuation process, we placed significant emphasis on the analysis of precedent transactions to ensure a well-rounded and market-reflective acquisition price for Terracon. We selected a range of comparable transactions involving companies with similar operational and financial characteristics to Terracon.

SNC-Lavalin's Acquisition of Atkins: This transaction involved the acquisition of Atkins by SNC-Lavalin, with an enterprise value (EV) of $3.6 billion and an EV/EBITDA multiple of 19.78x. The high multiple reflected Atkins strong market position and synergy potential.
Jacobs' Acquisition of CH2M: Jacobs acquired CH2M for an EV of $3.27 billion, with an EV/EBITDA multiple of 10.12x. This transaction highlighted the strategic fit and cost-saving synergies anticipated by Jacobs.
Fluor's Acquisition of Stork Technical Services: This deal had an EV of $783 million and an EV/EBITDA multiple of 6.9x. It underscored the value of integrating complementary technical services to enhance market offerings.
Engility Holdings' Acquisition of Tasc Inc: Engility Holdings acquired Tasc Inc for an EV of $1.1 billion, achieving an EV/EBITDA multiple of 12.2x. This acquisition was driven by the strategic goal of expanding capabilities in high-growth market segments.
Enovis' Acquisition of Charter International: Enovis acquired Charter International for an EV of $2.4 billion, with an EV/EBITDA multiple of 13.2x. The transaction demonstrated the potential for significant operational synergies and market expansion.

#Relative Valuation

In our valuation process, we placed significant emphasis on relative valuation using public comparables to ensure a well-rounded and market-reflective acquisition price for Terracon. We selected a range of comparable companies with similar operational and financial characteristics to Terracon.

EV/EBITDA Valuation: Our analysis utilized an EV/EBITDA multiple of 13.70x for both the 2023 estimate and the 2027 discounted projection. After applying a 20% discount for Terracon's private company status, the adjusted multiple was 0.80x. This yielded implied enterprise values of $1,512.93 million for 2023 and $1,139.86 million for the 2027 discounted estimate, averaging $1,326.39 million.
EV/Revenue Valuation: We applied an EV/Revenue multiple of 1.80x for both the 2023 estimate and the 2027 discounted projection. After accounting for a 20% discount for being a private company, the adjusted multiple was 0.80x. This resulted in implied enterprise values of $1,893.13 million for 2023 and $1,426.31 million for the 2027 discounted estimate, averaging $1,659.72 million.
Comparative Company Analysis: To validate our multiples, we conducted a comparative company analysis using public comps, selecting companies with similar operational and financial characteristics to Terracon.
Market-Reflective Multiples: The selected EV/EBITDA and EV/Revenue multiples reflect current market conditions and align with the characteristics of the companies used for comparison. This validation reinforced the reasonableness of the implied valuation ranges.

#Final Valuation

After performing a thorough analysis using various valuation approaches, including discounted cash flow (DCF), precedent transactions, and relative valuation, we conclude that the optimal acquisition price for Terracon is $1.54 billion. This value reflects the company’s solid financial performance, strong market position, and potential for further growth.

#Conclusion

In conclusion, the M&A advisory for Terracon highlights the company’s market strengths and strategic value as an acquisition target. The proposed price of $1.54 billion is supported by a comprehensive set of valuation methodologies and robust industry analysis, making it a favorable proposition for both Terracon and potential acquirers.