Jacobs Engineering Group has entered into a definitive agreement to acquire the outstanding shares of CH2M Hill Companies, an Englewood, Colo.-based consulting and program management firm that is a leader in infrastructure, environmental, and government sectors.
Dallas-based Jacobs will finance this deal, valued at $3.27 billion (including assumption of $416 million of CH2M debt), with 60% cash and 40% stock. The firm has secured financing, including a $1.2 billion three-year term loan.
The acquisition is expected to close by the first quarter of 2018. It is subject to approval by CH2M’s shareholders that would own 15% of Jacobs’ stock upon consummation.
Jacobs is already a major player in the oil and chemicals sectors as a consultant, engineer, and project manager. Its other specialties include construction, aerospace, and defense.
In CH2M, Jacobs is acquiring a 71-year-old firm that is a leader in such areas as water infrastructure, transportation, industrial manufacturing, and environmental services.
CH2M, with more than 20,000 associates, is employee owned. It generates about $4.4 billion in annual revenue, with 73% of its business coming from consulting and program management. More than 70% of its clientele is local, state, or federal governments. Its adjusted cash flow, as of June 2017, was $323 million.
The combined company’s $15.1 billion in revenue could challenge AECOM as the world’s largest engineering firm, at a time when the Trump Administration has proposed, in general terms, an infrastructure construction and repair program in the U.S. that would include $1 trillion in public and private funding over a decade.
The combined company would be more heavily weighted toward building and infrastructure than Jacobs is currently. And the combination would surpass AECOM in global design revenue ($10 billion vs. $7.4 billion).
Buildings & Infratstructure would be a bigger part of Jacobs' portfolio if its merger with CH2M goes through. Image: Jacobs
“This is a major milestone for Jacobs and the industry,” proclaimed Steve Demetriou, Jacobs’ Chairman and CEO, during a webcast to provide analysts with details about the agreement. Demetriou was joined by Bob Pragada, President of Jacobs’ Buildings and Infrastructure & Industrial business unit; and Kevin Berryman, the firm’s EVP and CFO.
None of CH2M’s corporate officials participated in the webcast, and it’s not clear who from CH2M’s C-Suite would be staying on, or whether Jacobs intended to use CH2M’s brand for marketing purposes.
Demetriou did say, though, that one of Jacobs’ top priorities is “retaining talent,” and that the combination would create “career development opportunities” for the combined company’s employees. He also stated that it was not Jacobs’ intention to simply fold CH2M into its operations, but to take advantage of each company’s strengths to become “a premier end-to-end global solutions provider.”
Jacobs has formed an Integration Management Office, led by Gary Mandel and Lisa Glatch, EVPs with Jacobs and CH2M, respectively. The firm has also hired an outside consultant (which it did not identify during the webcast) to assist the merger. Demetriou will chair an executive steering committee set up to ensure a smooth transition and integration.
Another priority is to deliver cost and cost synergies. Jacobs executives made the point several times that there is minimal overlap in Jacobs’ and CH2M’s clientele and markets, and that both companies have pursued relatively low-risk business strategies that focus on profitability and margins. Pragada pointed specifically to Buildings, Infrastructure, Aerospace, and Technology as “higher margin” sectors that the combined company would pursue.
However, there will be streamlining if this deal goes through. Berryman said Jacobs projects this combination to produce $150 million in annual cost savings by its second full year. Berryman said “at least” 50 of the two firms’ locations worldwide present “combination opportunities.”
During the webcast, some analysts expressed skepticism about this merger, based on past AEC deals that didn't pan out as advertised, and on the fact that this deal makes Jacobs more design oriented.
Executives at Jacobs—which during its history has acquired more than 70 companies—countered that this deal has undergone extensive due diligence of all of CH2M’s projects. More to the point, they said the acquisition is a good fit for Jacobs’ broader three-year strategic growth initiative that began last year.
Demetriou assured analysts that his company has “the accountable leadership in place” to execute the CH2M deal, and to “create a new industry leader and stronger partner.”
Related Stories
| Nov 9, 2010
Designing a library? Don’t focus on books
How do you design a library when print books are no longer its core business? Turn them into massive study halls. That’s what designers did at the University of Amsterdam, where they transformed the existing 27,000-sf library into a study center—without any visible books. About 2,000 students visit the facility daily and encounter workspaces instead of stacks.
| Nov 9, 2010
Turner Construction report: Green buildings still on the agenda
Green buildings continue to be on the agenda for real estate owners, developers, and corporate owner-occupants, according to the Turner 2010 Green Building Market Barometer. Key findings: Almost 90% of respondents said it was extremely or very likely they would incorporate energy-efficiency improvements in their new construction or renovation project, and 60% expected to incorporate improvements to water efficiency, indoor environmental quality, and green materials.
| Nov 5, 2010
New Millennium’s Gary Heasley on BIM, LEED, and the nonresidential market
Gary Heasley, president of New Millennium Building Systems, Fort Wayne, Ind., and EVP of its parent company, Steel Dynamics, Inc., tells BD+C’s Robert Cassidy about the Steel Joist Manufacturer’s westward expansion, its push to create BIM tools for its products, LEED, and the outlook for the nonresidential construction market.
| Nov 3, 2010
First of three green labs opens at Iowa State University
Designed by ZGF Architects, in association with OPN Architects, the Biorenewable Research Laboratory on the Ames campus of Iowa State University is the first of three projects completed as part of the school’s Biorenewables Complex. The 71,800-sf LEED Gold project is one of three wings that will make up the 210,000-sf complex.
| Nov 3, 2010
Park’s green education center a lesson in sustainability
The new Cantigny Outdoor Education Center, located within the 500-acre Cantigny Park in Wheaton, Ill., earned LEED Silver. Designed by DLA Architects, the 3,100-sf multipurpose center will serve patrons of the park’s golf courses, museums, and display garden, one of the largest such gardens in the Midwest.
| Nov 3, 2010
Public works complex gets eco-friendly addition
The renovation and expansion of the public works operations facility in Wilmette, Ill., including a 5,000-sf addition that houses administrative and engineering offices, locker rooms, and a lunch room/meeting room, is seeking LEED Gold certification.
| Nov 3, 2010
Sailing center sets course for energy efficiency, sustainability
The Milwaukee (Wis.) Community Sailing Center’s new facility on Lake Michigan counts a geothermal heating and cooling system among its sustainable features. The facility was designed for the nonprofit instructional sailing organization with energy efficiency and low operating costs in mind.
| Nov 3, 2010
Seattle University’s expanded library trying for LEED Gold
Pfeiffer Partners Architects, in collaboration with Mithun Architects, programmed, planned, and designed the $55 million renovation and expansion of Lemieux Library and McGoldrick Learning Commons at Seattle University. The LEED-Gold-designed facility’s green features include daylighting, sustainable and recycled materials, and a rain garden.
| Nov 3, 2010
Recreation center targets student health, earns LEED Platinum
Not only is the student recreation center at the University of Arizona, Tucson, the hub of student life but its new 54,000-sf addition is also super-green, having recently attained LEED Platinum certification.
| Nov 3, 2010
New church in Connecticut will serve a growing congregation
Tocci Building Companies will start digging next June for the Black Rock Congregational Church in Fairfield, Conn. Designed by Wiles Architects, the 103,000-sf multiuse facility will feature a 900-person worship center with tiered stadium seating, a children’s worship center, a chapel, an auditorium, a gymnasium, educational space, administrative offices, commercial kitchen, and a welcome center with library and lounge.