Jacobs to Acquire CH2M to Create Premier $15B Global Solutions Provider

Jacobs Engineering Group Inc. and CH2M Hill Companies Ltd. today announced that they have entered into a definitive agreement under which Jacobs will acquire all of the outstanding shares of CH2M in a cash and stock transaction with an enterprise value (EV) of approximately $3.27 billion, including approximately $416 million of CH2M net debt.

The combination unites two innovative companies with complementary capabilities, cultures and relationships, resulting in a differentiated, end-to-end value proposition for clients and an enhanced platform for sustainable, profitable growth.

With trailing twelve month (TTM) revenues of $4.4 billion1 and a team of 20,000 employees, CH2M is a world-renowned design, engineering and program management firm, and is a leader in key infrastructure and government service sectors that Jacobs has previously targeted for growth, including water, transportation, environmental and nuclear. Applying CH2M’s advanced design, technical and program management expertise across Jacobs’ global footprint will enable the combined company to deliver more solutions to more clients in both the government and private sector.

“By increasing our industry reach and adding to our already extensive skills, this transaction enhances our value to our clients and bolsters Jacobs’ position as a premier consulting, design, engineering, construction, and operations and maintenance technical services firm. CH2M brings to Jacobs a talented, engaged team with capabilities and values that are very complementary to our own. Together, we will bring more solutions to our clients, give more opportunity to our employees and create increased value for Jacobs’ shareholders. In addition, this transaction is consistent with our M&A criteria, accelerating our ability to achieve our financial growth targets and propelling Jacobs toward our vision of providing innovative solutions for a more connected, sustainable world,” said Steve Demetriou, Jacobs’ chairman and CEO.

“We are delighted about the prospects of combining CH2M with Jacobs,” said CH2M Chairman and CEO Jacqueline Hinman. “Since late 2014, we’ve been transparent about our plans to pursue an ownership transition, providing sustained access to capital for growth. Considering all of the options, we focused on securing greater opportunities for our employees, delivering superior value to our clients and enhanced value for our stockholders, all while continuing to serve the higher purpose our company is known for, providing sustainable solutions for a better world. Throughout this time, we strengthened our business portfolio and performance, which put us in a position to deliver the best possible value and outcome for the future of the company. This was the unanimous choice of our Board, and the value Jacobs will provide to our stockholders, reflects genuine appreciation for our employees and the world-class work we deliver to our clients.”

Compelling Strategic Benefits: Advancing Jacobs’ Strategy to Grow in High Margin, High Growth Business Lines2

Provides Leading Position in Infrastructure, Including Water and Transportation: Water represents an approximate $100 billion opportunity, growing 4 percent to 5 percent on a compounded annual rate. Engineering News-Record has identified CH2M as the top water design firm in the world. By leveraging CH2M’s world-renowned technical expertise in water across Jacobs’ global operating platform and strong project delivery skills, the combined company will have a premier global water business with the scale, critical mass and experience needed to more fully capitalize on industry growth trends.

Jacobs is already a global leader in the resource-constrained $300 billion transportation sector, which includes highways, rail, aviation and ports, and is growing 4 percent to 5 percent on a compounded annual rate. This sector has large spend and significant momentum given population growth and associated need for all transportation modes in multiple geographies, particularly in the United States, Australia, New Zealand, Southeast Asia, the Middle East and the United Kingdom. Jacobs’ premier position in transportation with CH2M is expected to make the combined company an employer of choice, enabling it to better attract and retain talent and address the sector’s resource constraints. Capitalizing on Jacobs’ and CH2M’s combined talent, resources and scale creates a unique opportunity to better serve clients and improve the quality and dependability of their infrastructure.

Better Positions Jacobs to Achieve Significant Growth in the Government Services Sector by Establishing Jacobs as a Tier 1 Service Provider to the Global Nuclear Industry and Significantly Expanding its Environmental Capabilities: Nuclear represents an approximate $145 billion opportunity, growing 2 percent to 3 percent on a compounded annual basis, with nuclear-related projects requiring specialized capabilities that are difficult to replicate. CH2M’s preeminent brand for program and project delivery in large scale environmental remediation in the nuclear industry, coupled with Jacobs’ complementary experience with governmental agencies around the world, including nuclear decommissioning, create significant business expansion opportunities.

Environmental work represents an approximate $160 billion opportunity, growing 4 percent to 5 percent on a compounded annual rate. The combined company will have among the broadest and deepest environmental capabilities in the industry. In addition, CH2M’s environmental expertise builds on Jacobs’ existing U.S. Federal client base, positioning the combined company to be a stronger partner for global government clients. Further, this leading environmental capability, from planning and permitting to remediation, is transferable across Jacobs’ private sector client base, creating the opportunity for substantial upside potential for the combined company.

Strengthens Capabilities in Industrials, and Petroleum and Chemicals: In Industrials, the transaction combines both companies’ superior engineering skills and proven construction management of high tech facilities to result in world-class, clean manufacturing expertise. This differentiated, end-to-end offering will better position Jacobs to respond to cyclical customer requirements in this sector.

The transaction also enhances Jacobs’ existing position in the petroleum and chemicals industry by providing additional operational and maintenance capabilities for upstream and midstream clients and enabling infrastructure for major petroleum and chemicals projects.

Compelling Financial Benefits: Delivering on Jacobs’ M&A Framework

Creates Significant Cost Savings: Jacobs expects to achieve $150 million of annual run-rate cost savings by the end of the second year following the close of the transaction. Savings are expected to come from real estate, optimization of corporate operations, alignment of organizational structures, procurement and IT systems. Jacobs expects to incur approximately $225 million in one-time costs to achieve these savings.

Creates Significant Upside Revenue Potential: Through this transaction, Jacobs expects to serve more clients with more solutions in more geographies around the world. This differentiator, combined with CH2M’s proven Program Management / Construction Management (PM/CM) expertise, is expected to create significant revenue upside potential given the companies’ complementary offerings and cross-sell opportunities. For example, following the close of the transaction, Jacobs will be able to offer CH2M’s water capabilities to existing Jacobs clients, deepening the company’s relationships in this growing sector and expanding Jacobs’ scope of work.

Transaction Value Represents Attractive Multiple: The transaction value represents an attractive enterprise value multiple of 6.9x TTM adjusted EBITDA3, including cost synergies. Excluding the synergy benefits, the transaction enterprise value represents a multiple of 10.1x TTM adjusted EBITDA. TTM adjusted EBITDA through June 2017 for CH2M is $323 million.

Strong Accretion to Jacobs’ Earnings: The transaction is expected to be 25 percent accretive to Jacobs’ adjusted cash earnings per share and 15 percent accretive to Jacobs’ adjusted earnings per share in the first full year post-close4.

Maintains Jacobs’ Strong Balance Sheet and Financial Flexibility: Following the close of the transaction, Jacobs expects to maintain an investment grade credit profile with net debt-to-TTM adjusted EBITDA of 1.9x.

Maintains Jacobs’ Low-Risk Profile: Post-close, 85 percent of Jacobs’ combined revenue is expected to be derived from projects with reimbursable or lower risk services – continuing to be one of the best risk profiles in the industry.

Comprehensive, Focused, Disciplined Integration Plan

Jacobs has formed an Integration Management Office (IMO) to oversee the integration of the two companies. The IMO will be jointly led by senior executives from both companies on a dedicated, full-time basis, including, as announced separately today, Gary Mandel, most recently Jacobs President of Petroleum & Chemicals, who has been appointed Executive Vice President of Integration for Jacobs, and Lisa Glatch, Executive Vice President for Growth and Sales at CH2M. In addition, Jacobs has hired a leading independent consulting firm to support the integration. Rigorous integration processes and protocols are being established to ensure transparency and accountability for synergy capture. Jacobs’ executive leadership team will be actively involved in integration planning with the Company’s Board of Directors engaged in oversight. At the close of the transaction, Jacobs’ Board will be expanded to include an additional director from CH2M.

In connection with integration planning, Demetriou continued, “Jacobs is leveraging lessons learned from past experiences and is focused on critical success factors, including retaining talent, building on the strong culture foundations of both companies, ensuring base business performance, and developing and delivering cost and growth synergies.

“Jacobs and CH2M have complementary cultures and shared values that put people at the heart of the business. With this foundation and the clear integration plan we have developed, we expect to successfully bring our companies together. We admire CH2M’s engaging culture and look forward to coming together as we work to realize the full benefits of a united team.”

Terms and Financing

Under the terms of the merger agreement, which has been unanimously approved by the Boards of Directors of both companies, CH2M’s stockholders will have the option to elect to receive either $88.08 in cash, 1.6693 shares of Jacobs common stock or a mix of $52.85 in cash and 0.6677 shares of Jacobs common stock subject to proration such that the aggregate consideration paid to CH2M stockholders will equal 60 percent cash and 40 percent Jacobs common stock. Following the close of the transaction, CH2M stockholders will own 15 percent of Jacobs shares on a fully diluted basis based on the number of Jacobs shares outstanding today.

The transaction is not subject to a financing condition. Jacobs expects to finance the $2.4 billion cash required for the transaction through a combination of cash on hand, borrowings under the Company’s existing revolving credit facility and $1.2 billion of new committed 3-year term debt arranged by BNP Paribas and The Bank of Nova Scotia. Jacobs’ post-close liquidity is expected to remain robust at approximately $900 million.

Approvals

The transaction, which is expected to close in Jacobs’ fiscal 2018 first quarter, is subject to the satisfaction of customary closing conditions, including regulatory approvals and approval by CH2M stockholders. Apollo Global Management, LLC (NYSE: APO), which has an approximate 18% voting interest in CH2M, has agreed to vote in favor of the transaction.

Advisors

Perella Weinberg Partners LP and Morgan Stanley & Co. LLC are serving as financial advisors to Jacobs. Fried, Frank, Harris, Shriver & Jacobson LLP and Wachtell, Lipton, Rosen & Katz are serving as legal counsel to Jacobs.

BofA Merrill Lynch and Credit Suisse are serving as financial advisors to CH2M. Latham & Watkins LLP and Richards, Layton & Finger, P.A. are serving as legal counsel to CH2M.