London-based Balfour Beatty plc. is considering selling Parsons Brinckerhoff some five years after buying the New York City-based design and management firm for the equivalent of $626 million.
Balfour Beatty CEO Andrew McNaughton also announced he is leaving the firm, effective immediately. McNaughton had only replaced former CEO Ian Tyler in January 2013. He became chief operating officer in 2009 and helped execute PB’s high profile acquisition later that year.
Marshall will run the firm until a successor to McNaughton is found, the company said.
“A sale of Parsons Brinckerhoff could deliver attractive shareholder value and make Balfour Beatty a simpler and more focused group,” group Chairman Steve Marshall said in a May 6 announcement, which included announcements of downgraded profit expectations for this year.
While PB has been “a highly successful business” that has grown since its acquisition, Balfour Beatty said that "having professional services and construction capabilities combined within one organization has not delivered material competitive advantage."
Added one executive, who declined to speak on the record, while the marketplace has been moving toward more alternative project delivery such as public-private partnerships and design-build, "it has proven to be more difficult to have all services under one roof and the value hasn't emerged as we anticipated."
While McNaughton's departure was "a surprise," said one corporate executive, "very few CEOs can survive multiple profit warnings."
The latest reduced profit forecast stems largely from an expected $51 million shortfall in U.K.
Balfour Beatty said construction services orders decreased in the first quarter, with increases in the Middle East and Hong Kong "more than offset" by reductions in the UK and US.
But it said its joint venture in Hong Kong "has been impacted by delays to certain existing infrastructure projects," which were not identified.
"There has been significant performance improvement in the regional construction business, but the mechanical and electrical engineering and major buildings projects businesses have both experienced significant operational issues," the company said.
Balfour Beatty said the issues began at the end of 2013 but they "have continued into 2014 and, taken together with poor operational delivery issues on a number of contracts and low order intake, the business has experienced an extremely challenging first quarter." It noted "further cost increases and delays" on some projects.
"Revenues in our Australian rail business were slightly lower than anticipated, due to delays in new tender opportunities in the Australian transportation sector," the company said.
However, Balfour Beatty noted "a significant milestone" early this year in gaining its first expected contract win for in Canada for its infrastructure investments business, as preferred bidder on a hospital redevelopment project in Vancouver. This project reached financial close in April.
It noted that its professional services business "has performed well, with profitability ahead of last year." Orders grew in the first quarter, with revenue in line with the same quarter a year earlier.
"A solid performance in US transportation and good performances in the UK and the Middle East were partially offset by a weaker performance in Canada," it said.
The firm noted it had reached financial close in the first quarter on a project management contract for Roy Hill, a 55-million-ton-per-year iron ore pit-to-port project in western Australia, "although the market remains challenging."
Parsons Brinckerhoff has engaged investment firm Goldman Sachs as advisor to determine its strategic options, which could include sale to a private equity firm.
Updates prior version to clarify that Balfour Beatty's announcement to acquire Parsons Brinckerhoff in 2009.