Shockwaves across industry as AECOM agrees $6bn deal to buy URS.

URS staff in the UK and internationally were stunned on Monday after arriving at work to hear news that they had been sold to US giant AECOM and would be joining a vast new global business.

Antony Oliver
14 July 2014

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[Images taken from the AECOM investor presentation pack]

For many, this is the second time they have been sold in the last four years. Around half of the URS UK staff are former employees of Scott Wilson which was bought by URS as part of a £230M deal in July 2010.

UPDATE: Steve Morriss, chief executive AECOM EMEA said:

"The agreement for AECOM to acquire URS is an exciting one for both companies. Many of our clients are asking for a broader range of services across an increasing number of locations, and the combination of skills and talent that upon completion we will be able to provide will ensure we have the strength and breadth to meet their needs. Working together, we will provide amazing opportunities for our staff to work across the world on the most exciting, innovative and important projects." 

News of the $6bn AECOM move was released on Sunday and sent shockwaves around the industry as well as URS. If agreed in October the deal will create a business with 95,000 staff, annual revenues of $19bn and pretax profits of around $1.3bn. 

[See Infrastructure Intelligence editor's comment this week]

“It was a total and complete surprise, kept under wraps very well and most of us found out about it on Monday morning via an employee internal announcement,” said a senior member of the URS UK team. “There has been a general groan of ‘oh no,not another two years of integrations and change and new systems and processes’. People do not want another big upheaval of management systems.”

However, on the positive side there is a feeling that the new organisation’s more adventurous geographic reach would bring opportunity and that AECOM’s presence in Africa, Central Asia and Russia could be exciting.

“We all know AECOM as a similar organisation to ours but in quite different segments to URS so this could offer opportunities to URS people who in recent years have been subjected to quite close control in where we work in the world,” he added. “With a vibrant portfolio of international work you can attract and retain staff much better.”

AECOM’s 2013 annual revenues were $8.1bn compared to URS at $11bn. However the deal is certainly AECOM led and the firm’s management will head the new executive team with AECOM chief executive Michael Burke and executive chairman John Dionisio leading the board.

Burke told investors that the deal would create a new industry leader and was a “transformational milestone” for AECOM that would “dramatically accelerate” its growth strategy and bring compelling value for both business stockholders.

While continued business consolidation in the engineering consulting market is seen as necessary and inevitable – and it was known in the market that URS had been trying to do a deal with Jacobs - few people foresaw a deal on this scale happening now or by these players.

“This is a good opportunity - the resulting company is a monster, but it depends how they organise themselves,” said one well-placed business leader this week, pointing out that such consolidation had to be handled very carefully to succeed. 

“It was a total and complete surprise, kept under wraps very well". URS senior team member

“I am aware that one of the shareholder activists has been putting pressure on URS for years to get more international which is why it bought Scott Wilson at that price,” he added referring to the bidding war with CH2M Hill that resulted in a highly inflated share price. 

“I imagine staff in the UK are shocked as they have only just got their heads round being URS not Scott Wilson,” he added, highlighting the risk of staff leaving. “We’ve certainly seen that happening with Jacobs and [its purchase of] SKM. There are now lots of SKM CVs flying around.”

“This combination creates an industry leader with the ability to deliver more capabilities from a broad global platform to reach more clients in more industry end markets. Clients, employees and stockholders of both companies will benefit from the opportunities created by these expanded capabilities, broad global reach in key growth markets and economies of scale." Michael Burke, chief executive AECOM

URS chief executive and chairman Martin Koffel has been the firm’s controlling mind for the last 25 years and, aged 74, his desire to move on was common knowledge. 

But certainly, despite these rumours, within the URS UK organisation staff have been left with a huge sense of shock, despite the efforts of an internal communications exercise to calm fears and reassure staff. 

With the deal announced late on Sunday, the first many staff knew of it was when they arrived at work on Monday morning, creating considerable disquiet, particularly among people who only recently lived through the purchase of Scott Wilson by URS.

“We all knew that Martin Koffel was going to move off the scene in the third quarter of this year and were ready for something but not quite this,” said another URS source. “However, AECOM showed an interest in Scott Wilson four years ago, so the ex-Scott people think that this is positive.”

The challenge for AECOM between now and the deal being completed in October, is to ensure that key URS staff are retained in the expanding market which is creating huge skills shortages and great opportunities for talent.

AECOM said that the deal would 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".

Certainly the URS portfolio of activity and huge market presence in the US will bolster AECOM’s current diverse range of activities in that market. Two thirds of the new business will be in the US, an increase on AECOM’s current 50%, with Europe, Middle East and Asia accounting for 14% of the new business compared to 26% currently. 

“Our fastest growing markets are outside the US and that is where we expect to take URS expertise and put them onto our platform.More than half of the URS business is complementary to AECOM.”

Michael Burke chief executive, AECOM

The two firms’ activities are seen as highly complementary with major overlap in only infrastructure (architecture, engineering & design) and government services.

“Our fastest growing markets are outside the US and that is where we expect to take URS expertise and put them onto our platform,” Burke told investors. “More than half of the URS business is complementary to AECOM.”

Across the globe it is expected the deal would generate around $250M in annual cost savings across its businesses in 150 countries by the end of 2016 – a figure described by one industry leader as “pretty aggressive”. 

AECOM will acquire all outstanding shares of URS for a combination of cash and stock valued at approximately $4bn or $56.31 per URS share. Including URS debt, the total deal value is around $6bn. 

The deal will leave the firm with a debt to Ebitda ratio of 4.4 and AECOM chief executive Michael Burke said the priority over the short term would be to reduce this ratio back to current ratio of 2.

“This combination creates an industry leader with the ability to deliver more capabilities from a broad global platform to reach more clients in more industry end markets,” said Burke. “Clients, employees and stockholders of both companies will benefit from the opportunities created by these expanded capabilities, broad global reach in key growth markets and economies of scale. In one step, we will dramatically accelerate our strategy of creating an integrated delivery platform with superior capabilities to design, build, finance and operate infrastructure assets around the world.”

Martin Koffel, chairman and chief executive officer of URS, added: “This is a compelling strategic combination that we believe will benefit our clients, stockholders and employees. Our two businesses are complementary, and our cultures are highly compatible. 

“We anticipate that employees from the combined company will benefit as the organisation integrates its leadership talent and capitalises on its greater scale to invest in its people, improve their career opportunities and advance their capacity to compete globally,” he said.