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DRX: Increasing Estimates on Groupe LAR Acquisition

What you need to know:
• ADF provided an update and hosted a conference call to discuss the acquisition of Groupe LAR.
• ADF plans to double LAR’s backlog by January 2027, benefitting from hydroelectric dam renovation and construction projects across Canada.
• Management will invest $35M over the next 24 months to increase LAR’s capacity and modernize its equipment.
• The acquisition largely diversifies ADF from a geographic, client concentration, and sector perspective, providing more consistent growth.

This morning, ADF Group (DRX:TSX) announced further information on the Groupe LAR acquisition and hosted a conference call to discuss the transaction. This included a goal to double LAR’s backlog by January 2027 on the back of $35M in capex for LAR. We remain highly bullish on this acquisition given that it diversifies ADF’s revenue from a client, geographic, and sector perspective. Post acquisition, ADF is a much stronger business, which will be able to post steadier growth going forward; we have updated our model to reflect this. ADF’s full presentation on the transaction and its plans can be found here. We are maintaining our BUY rating and our $12.00/share target price on ADF Group.

Key Highlights
• ADF closed the transaction on September 18th, with the final purchase being $20.4M, made up of $16.4M in cash (including a $1.4M working capital closing adjustment) and $4M in ADF subordinate voting shares (449,944 shares).
• ADF aims to double LAR’s backlog by January 31st, 2027, which stood at $104.5M as of July 2025. This will be implemented through a growth plan supported by upcoming pan-Canadian projects in hydroelectric development.
• In Quebec alone, Hydro-Quebec plans to invest more than $35B in hydroelectric dam renovation and the construction of new projects by 2035. Large-scale projects are also planned in Ontario, British Columbia and the Atlantic provinces.
• Furthermore, management expects that clients will prioritize local purchases and services, favouring key Canadian players such as LAR.
• To support LAR’s growth, ADF will invest $35M over the next 24 months into LAR’s main plant (subject to board approval). This will include increasing fabrication capacity and modernizing the equipment, generating operational efficiencies.
• ADF is expecting to start the construction of new buildings in April 2026 in order to be able to receive new equipment by December 2026. Also, management expects to increase the number of employees at LAR's Métabetchouan plant, which currently employs 200 people.