Jacobs to acquire CH2M in mega-deal

Jacobs Engineering Group Inc. and CH2M HILL Companies Ltd. have announced they have entered into a definitive agreement under which Jacobs will acquire all of the outstanding shares of CH2M in a cash and stock transaction with an enterprise value (EV) of approximately $3.27 billion, including approximately $416 million of CH2M net debt.

The acquisition will create a $15 billion global solutions provider in engineering, consulting and construction.

The deal unites two industry-leading, companies with complementary capabilities, cultures and relationships, resulting in a differentiated, end-to-end value proposition for clients and an enhanced platform for sustainable, profitable growth.

Jacobs has previously targeted CH2M for growth. With trailing 12-month (TTM) revenues of $4.4 billion and a team of 20,000 employees, CH2M is a world-renowned design, engineering and program management firm, and is a leader in key infrastructure and government service sectors, including water, transportation, environmental and nuclear. Applying CH2M’s advanced design, technical and program management expertise across Jacobs’ global footprint will enable the combined company to deliver more solutions to more clients in both the government and private sector.

“By increasing our industry reach and adding to our already extensive skills, 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,” said Steve Demetriou, Jacobs’ chairman and CEO.

“CH2M brings to Jacobs a talented, engaged team with capabilities and values that are very complementary to our own. Together, we will bring more solutions to our clients, give more opportunity to our employees and create increased value for Jacobs’ shareholders. In addition, this transaction is consistent with our M&A criteria, accelerating our ability to achieve our financial growth targets and propelling Jacobs toward our vision of providing innovative solutions for a more connected, sustainable world,” said Demetriou.

“We are delighted about the prospects of combining CH2M with Jacobs,” said CH2M chairman and CEO Jacqueline Hinman. “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. Throughout this time, we strengthened our business portfolio and performance, which put us in a position to deliver the best possible value and outcome for the future of the company,” said Hinman. “This was the unanimous choice of our Board, and the value Jacobs will provide to our stockholders, reflects genuine appreciation for our employees and the world-class work we deliver to our clients.”

Advancing Jacobs’ Strategy to Grow in High Margin, High Growth Business Lines

The acquisition provides the combined firm a leading position in infrastructure, including water and transportation. Water represents an approximate $100 billion opportunity, growing 4 to 5 percent on a compounded annual rate. Engineering News-Record has identified CH2M as the top water design firm in the world. By leveraging CH2M’s world-renowned technical expertise in water across Jacobs’ global operating platform and strong project delivery skills, the combined company will have a premier global water business with the scale, critical mass and experience needed to more fully capitalize on industry growth trends.

Jacobs is already a global leader in the resource-constrained $300 billion transportation sector, which includes highways, rail, aviation and ports, and is growing 4 to 5 percent on a compounded annual rate. This sector has large spend and significant momentum given population growth and associated need for all transportation modes in multiple geographies, particularly in the United States, Australia, New Zealand, Southeast Asia, the Middle East and the United Kingdom. Jacobs’ premier position in transportation with CH2M is expected to make the combined company an employer of choice, enabling it to better attract and retain talent and address the sector’s resource constraints. Capitalizing on Jacobs’ and CH2M’s combined talent, resources and scale creates a unique opportunity to better serve clients and improve the quality and dependability of their infrastructure.

According to a news release from CH2M, the transaction:

  • Extends Complementary Capabilities Across Jacobs’ Global Platform to Deliver Differentiated Client Value Proposition and Accelerate Profitable Growth;
  • Provides Jacobs with Leading Position and New Expertise in Targeted High Margin, High Growth Infrastructure and Government Services Sectors, Which Will Represent 56 percent of Pro Forma Revenue Compared to 45 percent Currently;
  • Transaction Equity Value of $2.85 Billion to be Paid 60 percent in Cash and 40 percent in Jacobs Common Stock;
  • $150 Million in Annual Cost Synergies Expected;
  • Enterprise Value Multiple of 6.9x TTM Adjusted EBITDA, Including Full Run-Rate of Cost Synergies;
  • Expected to be 25 percent Accretive to Jacobs’ Adjusted Cash Earnings Per Share and 15 percent Accretive to Adjusted Earnings Per Share in the First Full Year Post-Close; and
  • Maintains Jacobs’ Investment Grade Credit Profile with Net Debt-to-TTM Adjusted EBITDA of 1.9x Following Close of Transaction.

Terms, Financing & Approvals

Under the terms of the merger agreement, which has been unanimously approved by the Boards of Directors of both companies, CH2M’s stockholders will have the option to elect to receive either $88.08 in cash, 1.6693 shares of Jacobs common stock or a mix of $52.85 in cash and 0.6677 shares of Jacobs common stock subject to proration such that the aggregate consideration paid to CH2M stockholders will equal 60 percent cash and 40 percent  Jacobs common stock. Following the close of the transaction, CH2M stockholders will own 15 percent of Jacobs shares on a fully diluted basis based on the number of Jacobs shares outstanding today.

The transaction is not subject to a financing condition. Jacobs expects to finance the $2.4 billion cash required for the transaction through a combination of cash on hand, borrowings under the Company’s existing revolving credit facility and $1.2 billion of new committed three-year term debt arranged by BNP Paribas and The Bank of Nova Scotia. Jacobs’ post-close liquidity is expected to remain robust at approximately $900 million.

The transaction, which is expected to close in Jacobs’ fiscal 2018 first quarter, is subject to the satisfaction of customary closing conditions, including regulatory approvals and approval by CH2M stockholders. Apollo Global Management, LLC (NYSE: APO), which has an approximate 18 percent voting interest in CH2M, has agreed to vote in favor of the transaction.

For more on the transaction, click here to view the full news release from CH2M.

Jacobs also released a video announcement from CEO Steve Demetriou on the acquisition.

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