CH2M sold to Jacobs Engineering for $2.85B

International engineering behemoth CH2M, one of Colorado’s largest private companies, has agreed to be purchased by Dallasbased Jacobs Engineering Group Inc. for $2.85 billion, the companies announced Wednesday.

For Colorado, this is a big deal. Panama Canal big. CH2M, after all, was one of the key contractors hired to manage construction of the third lane for the watery shortcut through the Americas. When the third lane opened last year, CH2M CEO Jacqueline Hinman was one of the few Coloradans personally invited by the Panamanian government to attend the event.

“This is a winning combination,” Hinman said in a conference call Wednesday. “It’s not simply about being bigger, it’s about offering better: better opportunities for employees and outstanding value for stakeholders.”

The acquisition, expected to close — pending approvals — at the end of the year, is all about growth, said Steven Demetriou, Jacobs’ chairman and CEO. There is little business overlap, and the combination expands global reach for both. CH2M’s expertise in water infrastructure and environment were target growth areas for Jacobs, which primarily focuses on the aerospace, infrastructure, industrial and energy sectors.

“We’re a growing company. They’re a growing company. We

both needed more talent. We’re excited and moving onward and upward,” said Demetriou, who spent Tuesday meeting with local CH2M employees. “What we’re acquiring is talent first and foremost.”

Jacobs, which employs 54,000 people around the world, operates a downtown Denver office with about 450 people, he said. CH2M, with 20,000 employees worldwide, has about 1,700 in Colorado, with many working out of the Douglas County headquarters at 9191 S. Jamaica St.

The two have very similar corporate cultures, Demetriou said. And that doesn’t worry him. While Jacobs is publicly traded and CH2M is private and largely employee owned, Jacobs has plenty of experience integrating private firms. To date, Jacobs has acquired 74 companies that were mostly “privately owned, employee organizations,” Demetriou said.

“We have a very common transformational journey, clients and quality. It’s all about the people. I think as acquisitions go, the cultural opportunity is tremendous, but we also don’t overlap on the business side,” Demetriou said. “Their board is made of many CH2M employees that unanimously approved it. But more importantly, during the two months of due process, the enthusiasm we witnessed was just inspiring. We are off to a running start.”

While it’s too early to say what consolidation will occur, Hinman, one of the few women running a major U.S. engineering firm today, will leave when the deal closes, Demetriou said. Lisa Glatch, CH2M’s executive in charge of growth and sales, and Gary Mandel, who served as Jacobs’ president of petroleum and chemicals, will lead the integration of the companies.

“Technically, we’ve acquired CH2M, but we’re doing this as a combination. The important message here is our goal is to create a company that doesn’t exist in our industry today. We think there is tremendous opportunity to create an innovative company for smart cities and create the best end result for our clients,” Demetriou said.

Hinman and other top CH2M leaders are expected to fare very well financially. The Telegraph in London earlier reported that Hinman’s employment contract gives “shares worth five times her annual $1m salary.”

Formerly known as CH2M Hill, a name derived from its founders’ initials, CH2M has a long history in Colorado. Founded in Oregon in 1946, it moved to Denver in 1982. It became one of Denver’s biggest international players. Its highest-profile project in Colorado was as a partner in Kaiser-Hill, which cleaned up Rocky Flats, the U.S. Department of Energy’s contaminated plutoniumprocessing plant 16 miles northwest of Denver.

Its former CEO, Ralph Peterson, who died in 2009, was a well-known figure in Denver. Gov. John Hickenlooper called him a mentor and picked him to serve on his transition team to Denver mayor in 2003. Hinman is one of the only women to run a major U.S. engineering firm and belongs to the 6.4 percent of women who head a Fortune 500 company.

Jacobs, founded in 1947, moved to Dallas from California last year. Some of the company’s better-known Colorado projects are FasTracks, Denver International Airport and multiple projects with the Colorado Department of Transportation.

Jacobs’ stock price has surged since its 52-week low of $49.15 in October. Last fall, it benefited from President Donald Trump’s plan to spend $1 trillion on infrastructure projects, which has boosted engineering and construction stocks.

Adjusted for a February split, its stock traded about 8 percent higher than the 52-week low to close Wednesday up a half percent at $53.35. It has a market value of about $6.42 billion.

While CH2M has a share price, it isn’t publicly traded. The company’s board determines its stock price each quarter based on the performance of the business. A CH2M share currently has a price of $50.69, but the Jacobs offer valued the company at $88.08 a share, which Hinman called a “solid premium.” Shareholders would receive 60 percent cash and 40 percent Jacobs’ stock for each share.

The purchase price was higher than analysts and reports suggested — some expected it to be about $1.5 billion due to CH2M project liabilities and controversy overseas. CH2M lost a contract to oversee the second phase of the High Speed Two rail project, a major construction project in Britain. The firm also faced questions over pension liabilities stemming from its 2011 entry into the British market when it bought Halcrow.

CH2M made $15 million in net income on $5.2 billion in revenue in 2016, down from the prior year’s $80.4 million in net income on $5.4 billion in revenues.

In fiscal 2016, Jacobs reported net income of $396.2 million on $10.9 billion in revenue, according to Bloomberg. That’s down from $432.9 million in net income on $12.1 billion in revenue the prior year.

Jacobs expects the acquisition to provide $150 million in annual cost savings.

Pending C2HM stockholder approval, it will be one of the largest deals ever in the engineering industry, according to The Wall Street Journal, after Aecom’s roughly $4 billion deal to buy URS Corp. in 2014.

“Today I can say with confidence that in choosing this path with Jacobs, we’ve made the right choice and the best choice for our employees, clients and stockholders, just as our founders would expect,” Hinman said. “It’s a choice that honors them.”