Acquisition Binge Reshapes Tetra Tech – Los Angeles Business Journal

Spending Spree: Tetra Tech is expanding its global reach through acquisitions.

Spending Spree: Tetra Tech is expanding its global reach through acquisitions.

Pasadena-based engineering, consulting and government contracting firm Tetra Tech Inc. has quietly gone on an acquisition spree over the last two years, buying up five companies in an attempt to refocus on higher-margin business lines.

The acquisitions — two international and three domestic — are aimed at bolstering Tetra Tech’s capabilities in sustainable building design and data analytics as well as extending its global reach, Chief Executive Dan Batrack told analysts during the company’s quarterly earnings teleconference call last month.

The buying binge started nearly two years ago with three acquisitions in quick succession: Glumac, an infrastructure design company, in October 2017; Norman Disney & Young, an Australian infrastructure and design firm, in January 2018; and BridgeNet International, an aviation technology solutions firm in Newport Beach, also in January 2018.

Then, after a yearlong pause, Tetra Tech’s buyout activity resumed this year with eGlobalTech Inc., an IT cybersecurity and management consulting firm in Arlington, Va., in April and WYG, a British consultancy, in July.

WYG — the largest of the five acquisitions, involving 1,600 employees — was the only deal with an announced price tag: 43 million pounds (roughly $54 million).

Batrack said on the earnings call that more acquisitions will be coming over the next three years, especially in the building design market.

Share price runup

Tetra Tech provides management consulting and technical services primarily in resource management, infrastructure and communications for public- and private-sector clients. The company, which has roughly 20,000 employees worldwide, reported net income of $137 million on revenue of $2.2 billion for the fiscal year ending in September 2018.

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Investors have greeted the five acquisitions favorably. Tetra Tech’s share price nearly doubled from about $43 two years ago to $80.39 on Aug. 28.

Gerry Sweeney, an analyst with Newport Beach-based Roth Capital Partners, said the acquisitions are mostly aimed at boosting front-end work on projects — work that tends to have higher margins.

“From the mid-2000s until about 2015, Tetra Tech focused on doing more what could be called ‘back-end’ work on projects, such as construction management and soil remediation,” Sweeney said. “That work tends to be lower margin and carries with it a relatively high degree of risk. It added variability to earnings and, as a result, the company’s stock underperformed.”

Controversial cleanup

One soil cleanup project in particular generated considerable risk for years in the form of negative headlines for Tetra Tech: monitoring soil that had been contaminated with radiation and other pollutants from the now-shuttered Hunters Point Shipyard in San Francisco.

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