Aecom Technology Corp. (ACM)’s $4 billion purchase of URS Corp. (URS) will enable it to expand in the booming oil and gas sector in the U.S. and Canada, where URS operates in every major industry basin. The shares rose.
Many companies are vying for a bigger piece of the North American market amid a surge in output from shale rock formations such as the Bakken region, and new extraction methods like hydraulic fracturing. URS got 29 percent of revenue in 2013 from the oil and gas industries, according to an annual regulatory filing, from projects such as building pipelines and plants for producers. In 2012 URS bought Flint Energy Services Ltd. of Canada to expand in the segment.
“One of the best opportunities near term is in the industrial segment along the Gulf Coast -- that was one area within URS that was poised for resurgence,” said Adam Thalhimer, analyst at BB&T Capital Markets, in a telephone interview today in New York. He raised his rating on the stock from hold to buy.
Aecom will pay the equivalent of $56.31 a share for URS in the cash-and-stock deal, or about 19 percent more than its 30-day average closing share price, the companies said in a statement yesterday. Including debt, the value of the transaction would be about $6 billion. The per-share price is about 8.2 percent more than URS’s July 11 close.
“You couldn’t have had a better marriage of two companies that complement each other’s skill sets, scope and capabilities so well,” said Will Gabrielski, an analyst at Stephens Inc. in New York, who rates URS shares overweight.
“They both have the federal government as a large customer, but there is very little overlap in what they do,” he said. “It’s a great value for both companies.”
Aecom rose 10 percent to $34.98 at the close in New York, the biggest daily increase in almost two years. URS jumped 12 percent to $58.40, its largest gain since March 2009.
The transaction brings together companies that provide support and planning services for governments and large engineering and construction projects in the U.S., Canada and other countries. It will combine Aecom’s reach overseas with URS’s services such as pipeline repair.
“Together we will be one of the largest companies in the engineering and construction industry,” Michael Burke, Aecom’s president and chief executive officer, told reporters on a conference call yesterday. It’s a “transformational” deal for the two companies, which have worked together on the Barclays Center and World Trade Center developments in New York, he said.
The Los Angeles-based acquirer gets about 41 percent of its sales outside the U.S., compared with 26 percent for San Francisco-based URS.
Burke will be the CEO of the combined company, and Aecom Executive Chairman John Dionisio will lead the board. URS stockholders will get the equivalent of $33 in cash and 0.734 shares of Aecom for each URS share they own, with the option of receiving all cash or all stock. Aecom said it expects the deal to add to earnings in fiscal 2015.
The combined company will have more than 95,000 workers in 150 countries, according to the statement.
Based on the enterprise value of $6 billion, the deal represents about 4.6 times URS’s earnings before interest, taxes, depreciation and amortization of $1.3 billion in 2013. That compares with a median of 11.6 times for U.S. engineering and construction services deals valued at more than $1 billion in the past five years, according to data compiled by Bloomberg.
URS has been involved in the building of the Fred Hartman Bridge, which spans the Houston Ship Channel in Texas, and the renovation of the National Archives Building in Washington. It was among the companies most affected by the 2013 U.S. government shutdown, with 3,000 workers on furlough.