CH2M Hill said June 30 that it would not seek to acquire U.K.-based engineering firm Scott Wilson Group plc after URS Corp. announced it would raise its initial $187-million bid to $337 million, an offer the U.K. firm’s board is urging its shareholders to accept.
Denver-based CH2M Hill had made a $286-million counteroffer to buy the transportation specialist on June 28.
“While Scott Wilson is an excellent company and an attractive cultural fit with CH2M Hill, it is not felt to be value enhancing to us at the current valuation,” says Lee McIntire, chairman and CEO of CH2M Hill. “We will no longer proceed with the acquisition of the company. “We will follow the Scott Wilson board's recommendation in terms of our shareholding. CH2M Hill had follows announced, also June 28, that it had acquired enough Scott Wilson stock to own a 13% stake, making it the firm’s largest shareholder.
Scott Wilson CEO Geoff French says that the increased cash offer, “provides a compelling opportunity for Scott Wilson shareholders to realize a significant premium in cash,” and reflects the firm’s “underlying value.”
URS Chairman Martin Koffel says the combination of the firms would “create a global business with the financial resources to invest in further growth.”
Scott Wilson is ranked 57th on ENR’s List of the Top 150 Global Design Firms with about $630 million in 2009 revenue and is a leader in high-speed rail and other transportation work in the U.K. and elsewhere. But in its most recent earning statement in April for fiscal 2010, it reported that revenue was down 6%. Analysts also note a $93-million pension liability and issues with its orders, cash flow and receivables collection.
One financial observer noted that it’s “hard to say” if URS overpaid for the firm, but the new offer values the business at the very top end of the earnings multiples range we have been seeing in the last 20 or so transactions in the industry, so it appears URS was willing to bet on substantial synergies here.”
“URS is in this for the long term,” says Avram Fisher, engineering and construction sector analyst for BMO Capital Markets Corp., New York City. “Near term I think Scott Wilson Group's exposure to rail could help with URS’ existing high speed rail backlog in California and bidding on future projects in Florida and elsewhere.”