Dallas-based Jacobs Engineering Group Inc. is buying Denver-based CH2M HILL Companies Ltd. 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 $2.85 billion deal, which grows to $3.27 billion with the addition of CH2M’s net debt, is structured as 60% cash and 40% Jacobs stock. It values CH2M at $88.08 a share.
Jacobs says it expects to finance the $2.4 billion cash required for the transaction through a combination of cash on hand, borrowings under an existing revolving credit facility and $1.2 billion of newly committed three-year-term debt arranged by BNP Paribas and The Bank of Nova Scotia.
With trailing 12-month revenues of $4.4 billion and 20,000 employees, CH2M is a design, engineering and program management firm, and a leader in key infrastructure and government service sectors including water, transportation, environmental and nuclear. Those areas are being targeted for growth by Jacobs.
Jacobs expects to achieve $150 million of annual run-rate cost savings by the end of the second year following the close of the transaction. Savings are expected to come from real estate, optimization of corporate operations, alignment of organizational structures, procurement and IT systems. Jacobs expects to incur around $225 million in one-time costs to achieve these savings.
Jacobs has formed an Integration Management Office (IMO) to oversee the integration of the two companies. The IMO will be jointly led by senior executives from both companies on a dedicated, full-time basis, including Gary Mandel, most recently Jacobs president of petroleum and chemicals, who has been appointed executive vice president of Integration for Jacobs, and Lisa Glatch, executive vice president for growth and sales at CH2M.
In addition, Jacobs has hired a consulting firm to support the integration. At the close of the transaction, Jacobs’ board will be expanded to include an additional director from CH2M.
Under 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. Following the close of the transaction, CH2M stockholders will own 15% of Jacobs shares on a fully diluted basis based on the number of Jacobs shares outstanding today.
Apollo Global Management, LLC which has an approximate 18% voting interest in CH2M, has agreed to vote in favor of the transaction.