Jacobs Engineering Group Inc. announced Dec. 22 plans for a major acquisition that would expand the firm into new market areas such as mining and new geographies such as South America.
Jacobs said it has reached agreement to acquire some process and construction business units from Oslo, Norway-based engineer-contractor Aker Solutions ASA, for $675 million in cash. The deal is set to close in the second quarter of 2011.
Jacobs says the acquisition would "significantly expand global presence in the mining and metals market; provide a new geographic region with South America; and strengthen [its] presence in China." The firm says it expects a boost to its "regional presence" in Australia, Europe and North America.
About 4,500 technical and craft employees are expected to transfer. They are based in the U.K., the Netherlands, Germany, the U.S., Canada, Peru, Chile, Australia, China and South Africa, says Jacobs. The units mostly provide engineering, program and construction management and technical services.
Analysts say the acquisition by Jacobs, which has its headquarters is in Pasadena, was widely expected.
Aker Chairman Oyvind Eriksen says the firm has been seeking a separation approach for the units since August. Possibilities included an IPO or spinoff.
However, the deal would not include Aker's Houston-based U.S. engineer-procure-construct operation or its North American direct-hire construction and maintenance businesses. These units will become part of a new EPC arm, Aker Contractors, that will focus on offshore oil, gas and process work.
Aker also is keeping its operation in Saudi Arabia. Avram Fisher, an analyst with BMO Securities, says the deal would also exclude one "troubled" power plant project in the U.S., although he did not disclose the nature of the problems.
"We are acquiring solid businesses with a history of good performance, says Craig L. Martin, Jacobs president and CEO. "This acquisition allows us to further diversify our services and drive greater growth in our business."
Gary Mandel, executive vice president of the Aker process and construction business area, says the acquisition would offer "access to a much wider global resource base." He is expected to transfer to Jacobs, but his title and job scope were not disclosed.
Analysts seemed positive on the move.
"Mining is one missing piece in Jacobs' portfolio, which is primarily filled with energy, chemicals and infrastructure construction, and maintenance services," says Min Tang-Varner, E&C sector analyst for Morningstar Research Inc.
"Jacobs ended fiscal 2010 with a little less than $1 billion of cash on the balance sheet and $260 million available under its credit facilties. We do not expect the company's credit metrics to move materially out of line. We are maintaining our fair value estimate for the company, mostly driven by higher metal and mining revenue assumptions, offset by lower estimates on refining and chemicals."
BMO's Fisher says he is raising his earnings per share forecast for Jacobs by 2 cents to $2.44 in fiscal 2011, and by 30 cents to $2.90 in fiscal 2012. But he says, "we expect high competition and therefore margin drag in the acquired oil, gas and process market."
In addition, says an executive of a rival firm, "Jacobs' risk profile is different than Aker's so it will be interesting to see who changes who."