AECOM announced Monday it plans to sell its government contracting business for $2.4 billion to two investment firms rather than advancing a previous plan to spin the branch off into a stand-alone public company.
Affiliates of New York City-based American Securities and Lindsay Goldberg are joining to buy AECOM’s Management Services business.
In its press release, AECOM said the said the sale enables it to accelerate the timetable for parting company with the unit by six months or more.
Executives in June announced plans for a 2020 initial public offering for the Management Services group, which holds billions of dollars’ worth of contracts with the Departments of Energy and Defense and houses its commercial nuclear decommissioning operations. However, the Los Angeles-based infrastructure and engineering giant quickly received offers from parties interested in buying the business outright.
“When we announced the spin, we immediately had inbound interest” from prospects, Chairman and CEO Michael Burke said in a Monday call with Wall Street analysts. Bidding was “very competitive” and soon narrowed to three potential groups of buyers.
Late on Oct. 10, AECOM “reached a final agreement with one of the parties,” Burke said, not disclosing the other suitors.
AECOM evidently received more than a dozen offers or inquires for the business, sources said.
The $2.4 billion represents a strong price for the seller, an industry source who works for another DOE contractor said by telephone Wednesday. That is partly based on the company’s public financial numbers – the deal is valued at more than 11 times AECOM earnings before interest, taxes, depreciation, and amortization (EBITDA) for fiscal 2019, the source noted. That also seems like a strong price for a group with a number of major DOE contracts that could expire next year.
The deal is expected to close within 100 days, which translates to late January, providing the necessary regulatory approvals are reached without trouble. Major corporation mergers or acquisitions generally require approval from agencies such as the Justice Department and Federal Trade Commission.
After the deal goes through, the new government services company is expected to receive a new name. Under the IPO scenario, AECOM expected to complete the spinoff in the latter half of 2020.
“The Management Services business is a proven industry leader with distinctive expertise that plays a vital role in supporting governments around the world to execute programs of critical importance,” Russell Triedman, partner at Lindsay Goldberg, said in a joint press release with American Securities.
AECOM’s commercial nuclear portfolio includes partnering with EnergySolutions for the upcoming decommissioning of the San Onofre Nuclear Generating Station in California. The company in June also signed a deal with Toshiba to provide decommissioning services in Japan. Management Services also has contracts with the United Kingdom Nuclear Decommissioning Authority, its incoming buyers said.
Although Lindsay Goldberg previously held an ownership stake in nuclear services firm EnergySolutions, it divested it more than a decade ago, according to a representative of the Utah company.
Don’t be surprised to see the AECOM unit spun off within a few years, the industry official said. The two investment house owners could “skinny them down [through cost cuts] and sell them again.” After all, that’s what such firms do – resell companies for a profit, he added.
How long the new owners retain the AECOM government group is likely to depend on its economic performance, a second industry source said. If it generates strong profits, the new owners will probably be in no hurry to sell anytime soon, he added.
The website of the two purchasers stress they like to invest for the long term and typically work with existing management. “Lindsay Goldberg’s mission is to be the premier partner for families, founders, and management teams,” the firm says.
While new financial group owners typically look for cost savings, the fear of significant workforce reductions is much less than if the AECOM group was bought by a rival already in the nuclear cleanup space, sources said. An investment group won’t have existing environmental remediation employees and managers, they note.
A third industry source cautioned the renamed AECOM Management Services company will lose some resources that come along with being part of a major multinational that does construction projects ranging from professional sports arenas, to sewage systems, and highway interchanges. “All of a sudden it is not AECOM” anymore, he said. The Energy Department likes the idea of a prime contractor having access to wide-ranging expertise, he added.
The Goldberg firm has significant experience investing in the government services sector, Triedman said, pointing to prior investments in Virginia-based defense contractor PAE and technical support services vendor ECS Federal.
American Securities’ current holdings include Air Methods, which is involved in international air medical transport; Blue Bird, a manufacturer of school buses; and Ulterra Drilling Technologies, which makes steel bits used in oil and gas drilling, and related products.
