Wednesday, August 09, 2017

Colorado's largest private company to be bought by Texas firm for $3.27B

CH2M, Colorado's largest privately held company, is being purchased by JacobsEngineering Group Inc. of Dallas in a $3.27 billion deal, including debt, Jacobs announced today.

Jacobs (NYSE: JEC) will acquire all of the outstanding shares of the Douglas County-based global engineering firm for $2.85 billion in cash and stock in a deal that includes acquiring about $416 million of CH2M net debt.
The deal doesn't come as a big surprise: It was reported last week that a Jacobs-CH2M deal was in the offing.

The deal would be among the top acquisitions of all time in the engineering field. Aecom's 2014 acquisition of URS Corp. was valued at about $4 billion.
For Jacobs, which recently moved its headquarters to Dallas from Pasadena, California, the acquisition means it can grow in sectors it had already targeted, and where CH2M is considered a leader.

As Candace Carlisle of the Dallas Business Journal has reportedJacobs has been working to expand its operations in the United Kingdom in recent years because the market has massive growth potential for the firm.

CH2M already has a major role in the United Kingdom, while Jacobs has a limited presence there. The Colorado company is overseeing the refurbishment of the Palace of Westminster in London, better known in the U.S. as the Houses of Parliament.

"CH2M is a world-renowned design, engineering and program management firm, and is a leader in key infrastructure and government service sectors that Jacobs has previously targeted for growth, including water, transportation, environmental and nuclear," the announcement said.

CH2M — formerly known as CH2M Hill — was ranked at No. 494 in the latest Fortune 500 ranking of the nation's biggest companies, the highest ranking of any non-publicly-traded business in Colorado.

The company posted revenue of $5.236 billion in 2016, down from $5.362 billion the year before. Across the last 12 months, revenue was about $4.4 billion, according to today's announcement.

CH2M has more than 20,000 employees, including 1,742 in Colorado as of October 2016, according to Denver Business Journal Lists research. Jacobs had 466 employees in Colorado as of October 2016.
For CH2M, the deal means shareholders at the the employee-owned company can cash out.

“Since late 2014, we’ve been transparent about our plans to pursue an ownership transition, providing sustained access to capital for growth. Considering all of the options, we focused on securing greater opportunities for our employees, delivering superior value to our clients and enhanced value for our stockholders, all while continuing to serve the higher purpose our company is known for, providing sustainable solutions for a better world," said Jacqueline Hinman, CH2M chairman and CEO, in a statement.

Hinman was profiled last month in the Denver Business Journal.
The deal is expected to close in late 2017 (Jacobs' fiscal Q1 2018), subject to approval by CH2M's investors.

While CH2M is mostly employee owned, Apollo Global Management LLC (NYSE: APO) in 2015 invested $300 million in CH2M and holds an 18 percent ownership interest. Apollo has agreed to vote in favor of the deal, the announcement said.
Both companies' boards of directors have unanimously approved the deal.

Jacbos said the deal doesn't require arrange for new financing. The company said it expects to pay the $2.4 billion cash portion of the deal via a combination of cash on hand, borrowings under existing credit lines and $1.2 billion from a new, three-year term debt agreement arranged by BNP Paribas and The Bank of Nova Scotia. 

When the deal is finished, CH2M's shareholders are expected to own about 15 percent of Jacobs.

Jacobs said it expects to save about $150 million in annual costs by the end of the second year after the deal closes. Savings are expected to come savings in real estate, optimization of corporate operations, alignment of organizational structures, procurement and IT systems. Jacobs said it expects to incur approximately $225 million in one-time costs to achieve these savings.

CH2M sold its Douglas County headquarters building for $122 million in September 2016 and leased back space.

Steve Demetriou, Jacobs’ chairman and CEO, said the deal is good for Jacobs because it expands the companies expertise as well as adding CH2M's employees to the fold.

“This transaction enhances our value to our clients and bolsters Jacobs’ position as a premier consulting, design, engineering, construction, and operations and maintenance technical services firm," Demetriou said in the announcement.