After Carillion's Collapse: What Fairfax's Move Means For Carillion Canada And The Industry

Fairfax Financial Holdings Ltd. has entered into an agreement to acquire some assets from Carillion Canada, which recently sought bankruptcy protection.

Fairfax will acquire Carillion’s services business “relating to facilities management of airports, commercial and retail properties, defense facilities, select health care facilities, and on behalf of oil, gas and mining clients, including under the Outland brand,” according to a Fairfax news release.

The deal also calls for Fairfax to take on 4,500 of Carillion’s 6,000 Canadian employees.

“We are excited to have the services business of Carillion Canada join the Fairfax group,” Fairfax Chairman and CEO Prem Watsa said in the statement. “The services business of Carillion Canada has an excellent long-term track record and we look forward to working with this team in growing their business over the long-term.”

The acquisition marks the latest twist in the Carillion Canada drama. The firm's England-based parent company, which employed 43,000 people globally, filed for compulsory liquidation on Jan. 15 after failing to reach a refinancing package for $2.1B in debt.

Carillion Canada — which accounts for about 11%, or $1B, yearly of the company's global revenue — at first publicly stated it would continue business as usual.  But on Jan. 25, it sought bankruptcy protection.

“We are delighted that more than 4,500 members of our team will be joining the Fairfax family,” Carillion Canada President and CEO Simon Buttery said in the statement. “This transaction will provide certainty and stability for the clients we work for and the customers we serve, and a strong platform for the continued growth of the business.”

The transaction will provide some immediate relief and stability to an industry still assessing the full impact of the Carillion collapse.

“I think it’s an opportunistic move but a smart move. There are obviously projects in Carillion Canada’s operations that will provide some return,” said Vince Versace, national managing editor for the construction industry’s Daily Commercial News and Journal of Commerce.

“I’m happy for the 4,500 employees and the industry. There’s continuity for the projects. But [it’s] definitely wait and see.”

Versace was cautious in assessing what the transaction means. He said Carillion’s infrastructure service operations are not exactly what Fairfax is known for. Fairfax describes itself as a “holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management”.

Toronto-based Fairfax does have a track record of buying up financially troubled operations. In 2016, Fairfax and CI Financial Corp. bought retailer Golf Town while its U.S. parent company was seeking protection from its creditors. Fairfax and Sagard Holdings Inc. bought the New Hampshire-based Performance Sports Group Ltd. — also seeking bankruptcy protection — for US$575M last year.

Fairfax’s interest has not been in the industrial, commercial or institutional sector of the construction industry, Versace said.

“So, is it short term? We’re looking to see what the reaction in the industry will be,” he said.

Carillion’s collapse in the U.K in January prompted opposition politicians and unions to question the Ontario government’s penchant for public-private partnerships — be it for highway maintenance or hospitals. Two Canadian unions — Unifor and the Ontario Council of Hospital Unions — even urged Ontario's provincial government to stop the privatization of hospital service contracts.

"It is also time for these projects to be brought back into the public sector. The folly of private ownership of the hospitals is exposed fully by this bankruptcy," OCHU President Michael Hurley said in a statement.

Versace said he does not see a problem with public-private partnerships in Ontario. From an industry perspective, he said the province has a lot of experience.

“[Carillion’s collapse] wasn’t because of the Canadian operations,” he said. “Ontario is among the global experts in P3s. We’ve got built-in expertise with the players involved and due diligence.”

The Fairfax-Carillion transaction is still subject to closing conditions, including approval by the Ontario Superior Court of Justice. The deal is expected to close in the next month.

UPDATE, FEB. 6, 6:30 P.M. ET: This story has been updated to include additional analysis and commentary on the Carillion bankruptcy and deal with Fairfax.