Tetra Tech Acquires EBA Consultants - Analyst Blog

Tetra Tech Inc (TTEK) has acquired a closely held scientific and engineering consulting firm located in Canada.
 
The firm, EBA Engineering Consultants Ltd, has more than 600 employees and provides scientific and engineering services to the mining and infrastructure sectors. It has annual revenues of $100 million and is the second major acquisition of Tetra Tech in Canada after Wardrop Engineering in 2009. The financial results of the firm will be consolidated under Tetra Tech’s Environmental Consulting Services business segment while the firm will operate as its wholly-owned subsidiary.
 
The acquisition will be accretive to Tetra Tech’s earnings within a year.
 
We expect the U.S. stimulus package to drive accelerating sales and profit growth over the next couple of years. TTEK should exceed expectations in 2010, given its defensive growth profile, strong balance sheet and potential for further upside from stimulus spending and potentially accretive acquisitions.
 
Federal bodies such as The United States Agency for International Development (USAID), the Army Corps of Engineers and the Environmental Protection Agency (EPA) are all receiving significant increases in funding even without taking stimulus spending into account. Including stimulus funding, these departments and the Dept. of Defense are responsible for approximately 40.0% of TTEK's revenue. In the most recent quarter, 18% of quarterly revenues were sourced from U.S state and local bodies. Moreover, TTEK is set to experience a 25% funding increase in the current year.
 
Demand for state and local government services is cyclical and vulnerable to economic downturns. If the economy weakens, then the company’s revenue, profits and financial condition may deteriorate. TTEK derives a majority of its revenue from government agencies. Any disruption in government funding or in its relationship with those agencies could adversely affect its business.
 
A significant shift in U.S. defense spending could harm its operations and reduce future revenue. Moreover, delay in the completion of the budget process for the U.S. government could postpone procurement of its services adversely impacting future revenues.
 
Tetra Tech Inc. is a leading provider of consulting, engineering, program management, construction and technical services focusing on resource management and infrastructure. It provides cost-effective and innovative solutions to serve fundamental needs for water, environmental and alternative energy services. It typically begins at the earliest stage of a project by applying science to problems and developing solutions tailored to clients' needs and resources. Its solutions may span the entire life cycle of the project and include applied science, research and technology, engineering, design, construction management, construction, operations and maintenance, and information technology.
 
We currently have a Neutral recommendation on Tetra Tech Inc.