U.K.—based designer W.S. Atkins plc will significantly boost its U.S. market stake with the Aug. 2 announcement of plans to acquire Orlando, Fla.-based transportation engineer and construction manager PBSJ Corp. in a $280-million cash transaction. The proposed deal also provides the U.S. firm with a needed capital infusion for growth and an ownership transition following several tough years financially and recent efforts to seek a buyer.
The deal would link Atkins, the industry’s 11th largest global design firm with $2.2 billion in 2009 revenue, with an employee-owned engineer that ranks 28th on ENR’s list of the Top 500 Design Firms, reporting $513.9 million in design revenue last year. PBSJ also ranks as the industry’s 17th largest construction management-for-fee firms and is 23rd on the list of the Top 50 program management firms.
Atkins says PBSJ’s total revenue in 2009 was $799 million. About 80% of its work is in the public sector. PBSJ has about 3,000 employees.
The transaction, still subject to shareholder and regulatory approval, is set to close in early fall, says Atkins, which is also relying on new credit facilities for financing. PBSJ would become a wholly-owned subsidiary, but will take on the Atkins brand beginning next April, say Atkins officials. But its construction arm, Peter R. Brown Construction Inc. will maintain its name, says a PBSJ spokeswoman.
PBSJ “meets every single one of our criteria,” says Keith Clarke, CEO of Atkins. The firm is “in a transparent market that values quality and has a business model we understand. This provides us with the opportunity to grow in America, the biggest infrastructure market in the world."
Robert Paulsen, PBSJ’s chairman and CEO since March, says its executives “wanted to grow the company in a way that employee ownership alone could not support.” He notes that the Atkins deal ” provides an excellent cultural fit for our business and a great opportunity to further develop our offering.”
Atkins says PBSJ “will operate as a national business of Atkins in the U.S. and will be led by Paulsen, who reports to Clarke. Neither firm announced any planned change in Paulsen’s status or title as a result of the acquisition, but it could not be confirmed at press time if that is set to occur.
Atkins will build on PBSJ’s broad geographical presence to grow business lines it has identified as core in the U.K., says Clarke. These include nuclear power and railroad engineering. "We have the ability to take PBSJ into other U.S states, and to add technical skills,” he says. “We have strong complementary skills in water and environmental engineering in addition to building design which we expect to exploit within each business in existing local markets.”
Atkins currently owns U.S-based cost consultant and program management firm Faithful & Gould, but a previous attempt, under different management, to seek a large American stake ended poorly in 2003 with its purchase of Oklahoma City-based design firm The Benham Cos. That company was bought back by management, who cited cultural differences and a poor investment outcome. More cently, it became a subsidiary of defense consultant SAIC Corp.
But the PBSJ deal appears to be winning more favorable reviews. “It’s a sensible deal in terms of strategy,” says David Brockton, an equity analyst at investment bank Execution Noble Ltd. London. Atkins had indicated its intention to enter a new region and the U.S. “is a clear gap in the portfolio,” he says. The acquisition would also “dilute” the firm’s risk in the uncertain U.K. public sector market. About 70% of Atkins’s sales now come from the U.K. Another analyst raised a concern about its “exposure” in the Middle East. Atkins ranks eighth on the list of firm with design revenue in that region. But Brockton believes Atkins paid the right price for PBSJ, relying on its ample balance sheet.
The deal also seems a good one for PBSJ. “It is a significant premium over PBSJ internal stock price, and within the range of recent valuation multiples for similar transactions,” says Andrej Avellini, managing director of EFCG Inc., a New York M&A and financial advisory firm that had been an advisor to Atkins. “PBSJ clearly they felt this was the best financial and strategic option for all their constituents - shareholders, employees, and clients.”
The transaction follows several years of corporate tumult for PBSJ that has taken a toll on its bottom line and management, including an embezzlement scandal involving its former chief financial officer and two other financial staffers, federal scrutiny of possible violations of the Foreign Corrupt Practices Act and the retirement of long time Chairman and CEO John B. Zumwalt III last spring.
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