Accelerating its push into next-gen design, consulting and technology development, Jacobs said Nov. 30 it is set to buy a 65% stake in PA Consulting, a UK-based management consultant with roots from the 1940s that now specializes in "innovation and transformation" consulting to clients in defense, security, life sciences, transportation and energy sectors.
According to Dallas-based Jacobs, PA Consulting has advised on the Virgin Hyperloop project and the development of iPredict, what it described as the world's first artificial intelligence and machine learning system to predict failures in critical underground power distribution assets. It also releases an annual analysis and ranking of power provider reliability.
The deal’s enterprise value is about $2.4 billion, with Jacobs set to invest $995 million in equity and assume $845 million in debt. Jacobs said it will provide PA Consulting up to a $130-million credit line.
PA Consulting employees, which number about 3,200 in the U.K., U.S. and Europe, will own the remaining 35%, following the exit of Carlyle Group, the U.S. private equity firm. It had acquired a 52% majority stake in 2015 and had recently signaled its intent to sell.
According to Credit Suisse, PA Consulting is expected to have revenue of $715M in calendar 2020 and achieve a 22% (EBITDA) margin.
Jacobs' 'Unique Offering'
Jacobs reported in mid-November $13.6 billion in revenue for its completed 2020 fiscal year and 55,000 employees globally. The firm also leads ENR’s Top 500 Design Firms list, reporting nearly $9.7 billion in 2019 revenue from engineering and design work, about $2.85 billion outside the U.S. It told analysts during its year-end earnings call that revenue from U.S. federal government contracting made up 33% of total fiscal 2020 revenue.
“Our partnership with PA forms a unique offering in the market that combines strategic front-end consulting and deep domain knowledge across key sectors with next generation science and technology expertise,” said Jacobs Chair and CEO Steve Demetriou. "We are excited by ... the opportunity to set a new industry benchmark together for technically-driven solutions ”
Jacobs expects the transaction to close by the end of its fiscal 2021 second quarter subject to regulatory and shareholder approvals.
“PA adds a wide range of technical capabilities such as digital, performance improvement, business design, and product design and engineering across a broad range of sectors, with defense and security the most significant,” said Jamie Cook, Credit Suisse managing director and lead engineering and construction sector analyst.
According to Bloomberg Law, PA Consulting's expected earnings rise prompted Carlyle to ramp up its sale effort in September, with the investor reaching out "to gauge interest."
PA Consulting Chairman John Alexander said "Jacobs stood out during the selection process," noting its “reputation as one of the leading global providers of technical and professional services to clients across the public and private sectors.”
Andrew Wittmann, lead engineering-construction analyst for Baird Equity Research, said that while public markets "often frown on complicated JVs as a risk to multiple attainment," the deal shows Jacobs' "commitment" to delivering a higher-end consulting firm, "with potential to leverage well developed technical expertise from the U.K. into new U.S. markets."
STO Building Group Reaches West
In another investment deal announced Nov. 30, privately held STO Building Group said Nov. 30 it has inked a purchase transaction for Abbott Construction that will make the Seattle building contractor the newest unit of its U.S. construction network.
No transaction terms were disclosed. Abbott has current revenue of about $250 million and 265 employees.
It will “report through” STO’s Layton Construction unit, which was acquired in 2019. Founded in 1983, Abbott is a West Coast commercial builder that specializes in healthcare, hospitality, education, non-profit, retail and tenant interiors sectors.
"By joining forces, both firms can leverage each other's geographic reach," said STO Building Group CEO Bob Mullen. The firm ranks at No. 7 on ENR's Top 400 Contractors list, reporting $7.8 billion in 2019 revenue.
Current Abbott leaders will keep their titles and "will retain an ownership position" in the larger organization, STO said, although the number who will have that stake was not disclosed.
“We see joining the STO family as an exciting next step in what we can offer our clients and our employees without sacrificing who we are and have been for the past 35-plus years,” said Troy Stedman, Abbott president and CEO.