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AECOM deal with URS sets a positive benchmark for consolidation in engineering

Antony Oliver, Infrastructure Intelligence editor

Fewer bigger players should herald a more efficient and effective future for infrastructure, says Antony Oliver.

This week’s jaw dropping news from AECOM demonstrates that, in the world of global engineering consultancy, consolidation is certainly the way of the future. 

The acquisition of long standing URS Corporation by this relative new kid on the block will create one of the biggest engineering firms in the world with 95,000 staff and annual global revenues of $19bn. It can only really be described as global game changer.

There are a few regulatory hurdles to clear before the deal is signed and sealed in October but, given the spread of activities in each firm’s portfolio and the current fragmented nature of the market, there is really no reason to think that it will not make it across the line. 

A quick look back at past successful and less successful comings together in the market will demonstrate that communication plays a massive role - and that there are ways to get this right or less right.

This deal is just one of many on-going acquisitions in the market. Speak to virtually any chief executive of a medium to large scale business working in infrastructure right now and they will tell you that growth is their priority – organic certainly, but through acquisition of course.

The economic recovery in many ways makes this growth strategy that much easier. Low interest rates, healthy long term forward workload predictions and a return to higher margins mean that bigger is increasingly better when it comes to maximising return on investment. 

To make the deal happen AECOM has secured loan agreements with its bank to boost debt to a whopping $5.2bn or 4.4 times the forecast 2014 earnings. 

“Strong free cash flow,” it says “will provide for deleveraging over next 3-4 years” enabling the new combined group to return its debt back to current levels of twice ebitda by 2017. 

Given the strength of the market right now and the prediction that it will continue to strengthen over the next decade, and the clear market and geographical fit between the two businesses, there must be every expectation that this challenging goal will be achievable. 

Yet just like every business acquisition or merger, regardless of size, two things remain critical to future success beyond simply maximising return on investment. 

First is achieving a unified culture which aligns and inspires all staff behind the new common cause. Given that many of the URS staff have just emerged from four years of migrating away from the Scott Wilson brand, this challenge cannot be underestimated. 

Success will mean more efficient and effective services for clients and greater career opportunities for more engineers. 

And make no mistake, finding $250M in cost savings will not come easy or without pain.

Second is convincing existing and future clients that the additional business scale and management focus on integration will not distract from servicing their needs. Why, the question will be, is bigger necessarily better for them?

A quick look back at past successful and less successful comings together in the market will demonstrate that communication plays a massive role - and that there are ways to get this right or less right.

Over the next few months AECOM will have its work cut out on both challenges. But success will mean more efficient and effective services for clients and greater career opportunities for more engineers. 

It will underline the value and benefit of consolidation and so boost the ability of engineering firms to lead the delivery and the debate over infrastructure and its role in securing economies and societies of the future.

Antony Oliver is editor of Infrastructure Intelligence