Safety first: Analyst praises Calian’s $8M acquisition of Ottawa’s ISR

Ottawa professional services firm says deal for smaller local competitor will shore up training offerings in nuclear sector and expand geographic reach
MIlitary training
One of Calian’s main sources of revenue is providing training to Canada’s military.

Calian Group’s latest acquisition will open up markets for the Ottawa-based company in the nuclear safety and emergency preparedness sectors, its CEO predicts.

Calian announced last month it had acquired International Safety Research, a local firm that specializes in providing radiation and nuclear safety engineering and emergency preparedness training to governments and commercial customers. Founded in 1998, ISR employs about 25 full-time workers at its Colonnade Road facility.

Calian (TSX: CGY) did not reveal how much it paid for ISR, but a Toronto-based securities firm pegged the price at $8.2 million – roughly equal to the company’s annual revenues and about five times its earnings before interest, taxes, depreciation and amortization.

For Calian – a firm that earns nearly half its revenues from offering services such as training and health care to the Department of National Defence – bringing its smaller Ottawa cousin into the fold will help broaden its market reach and boost its credibility in the nuclear safety space, chief executive Kevin Ford says.

“They clearly have more subject matter expertise,” he says. “It’s really going to expand our emergency management capabilities. I think Calian is known as a training company. We probably are not known as a company with deep roots in nuclear, so this definitely gives us that pedigree, for sure.”

European presence

Calian’s fourth acquisition in the last four years, ISR is dwarfed by its new owner, which employs more than 2,700 people and is forecasting revenues of between $265 million and $285 million in fiscal 2017.

However, analysts say the deal could pay off handsomely for Calian by giving it a key foothold in new territories, both geographically and in terms of services. ISR has offices in the Netherlands and Dubai, providing Calian a springboard to growth in Europe and the Middle East.

“Under the leadership of (Mr. Ford), Calian is pivoting towards higher sustainable profitable growth by expanding its product lines and market reach via acquisitions,” the Toronto firm’s briefing note says. “We believe this will increase valuation and deliver attractive growth and dividends for investors.”

“It’s really going to expand our emergency management capabilities. I think Calian is known as a training company. We probably are not known as a company with deep roots in nuclear, so this definitely gives us that pedigree, for sure.”

The acquisition of ISR also gives Calian clients instant access to the smaller firm’s cutting-edge disaster simulation tools. Customers such as nuclear power companies use the technology to replicate real-life emergency situations during training exercises – for example, its software can project where toxic clouds of radioactive material would blow based on prevailing winds, while its web-based platform can simulate the panicked spread of misinformation on social media triggered by a traumatic event.

Mr. Ford says those tools and others are increasingly valuable in helping clients prepare to deal with potential catastrophes of all kinds, from terrorist attacks to natural disasters such as the recent flooding along the Ottawa River.

While training first responders to deal with emergencies already makes up “a significant part” of Calian’s business, he says the new deal significantly adds to the firm’s already well-stocked tool kit.

“Those things, as you know, are global,” Mr. Ford says. “And we believe now with our pedigree that we’ve got, both with Calian and ISR, we can continue to go after that marketplace.”

Surveying the international marketplace, Calian’s CEO sees a world of potential customers who could benefit from ISR’s expertise, from oil and gas firms to airports and defence agencies.

“You start thinking about NATO, you start thinking about other European opportunities that could leverage these skillsets,” Mr. Ford says. “I always say one plus one equals three (in acquisitions). Well, we really feel that one plus one equals five here on this one because there’s just so many ways it lines up to what we’ve been trying to do both tactically and strategically.”

ISR chief executive Michael McCall did not respond to a request for comment. Mr. Ford says Calian hopes to retain ISR’s entire senior management group.

He called the deal a win-win for both sides, saying Calian gets access to new services and markets while ISR receives a much-needed injection of capital. The result is a combined firm with the muscle and the know-how to pursue major contracts around the globe.

“There were opportunities we likely couldn’t chase with Calian just because we didn’t have that specific nuclear pedigree,” Mr. Ford explains. “For ISR, there have been opportunities they haven’t been able to pursue just because the size of the opportunity was beyond their capability.”

The Toronto equities firm agrees.

“We see a good opportunity for Calian to drive growth and diversification by acquiring smaller competitors and peers that target specific regions and capabilities, but lack the capital to grow and scale to compete effectively with Calian,” its note says. “Mr. Ford is expanding product and service capabilities, geographic reach and diversifying Calian’s dependence on the Canadian government.”