AECOM Corporation (ACM) has announced its intentions to acquire San Francisco-based URS Corp. (URS) for about $4 billion or $56.31 per URS share. Slated to close in Oct 2014, the deal’s total enterprise value stands at around $6 billion. Post merger, AECOM is likely to become one of the largest companies, in terms of revenues, in the engineering and construction industry.
Financial Details
Per the terms of the deal, URS shareholders will receive per share consideration of $33.00 in cash and 0.734 shares of AECOM common stock. Additionally, the shareholders have the alternative to opt for an all cash or all stock consideration and will be divided on pro rata basis in case of oversubscription. However, the election will depend on a customary proration method to achieve a combined consideration mix of approximately 59% cash and 41% AECOM common shares.
Nevertheless, AECOM stockholders will retain their shares subsequent to the transaction while URS stockholders will own about 35% shares of the combined entity, vesting in them the right to take business-related decisions.
AECOM has received the Bank of America’s approval to debt finance the transaction, subject to customary conditions. The proceeds will be used to refinance a portion of the existing AECOM and URS debt and fund the cash part of the deal. The financing commitment also includes senior secured credit facilities. On closure, AECOM will likely have $5.2 billion in total outstanding debt.
Financial Synergies
The deal price of $56.31 per URS share is at 8.2% premium to its Friday’s closing price of $52.02. In fiscal 2013, both the companies generated combined revenues of $19 billion with an EBITDA of $1.3 billion.
AECOM expects this deal to return more than 25% in the very first year of operations. The company also expects to realize $250 million in annual cost savings and synergies by the end of fiscal 2016.
Operational Synergies
Both URS and AECOM’s businesses perfectly complement each other which will lend the merged unit a broad global reach with an improved ability to deliver integrated services.
URS Corp. is a leading provider of engineering, construction and technical services with about 33% of the total revenue being generated by the Infrastructure & Environment division, 21% by Federal Services, 26% by Energy & Construction and 20% by Oil & Gas. Therefore, post the acquisition, AECOM intends to accelerate its strategy of offering an integrated-delivery model by adding key capabilities and expertise in markets including construction, oil & gas, power and government services, given URS’ stronger sector knowledge.
Conclusion
Post-merger, the combined company will be a leading, fully integrated infrastructure firm, serving clients across a broad range of markets, including transportation, facilities, environmental, energy, water and government. The united entity will be headquartered in Los Angeles with a key operational presence in San Francisco, where URS is presently based.
AECOM currently has a Zacks Rank #4 (Sell). Some better ranked stocks in the industry include Emerson Electric Co. (EMR) and Franklin Electric Inc. (FELE). Both carry a Zacks Rank #2 (Buy).
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