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Balfour Beatty sells Parsons Brinckerhoff 3 Sep 2014

Shani Wallis, TunnelTalk
WSP creates team with Parsons Brinckerhoff
WSP creates team with Parsons Brinckerhoff

It was a bold move that held significant potential when announced in 2009, but five years after buying the US global consulting engineering firm Parsons Brinckerhoff, UK contracting group Balfour Beatty has closed a deal to sell PB to engineering firm WSP headquartered in Montreal, Quebec, Canada.

It was sale of Parsons Brinckerhoff, as a particularly profitable part of the group that presented the best move for solving financial pressures within Balfour Beatty. It has been known for several months that Parsons Brinckerhoff was on the market for sale.

In its press release, WPS states that it has entered into a stock purchase agreement to acquire from Balfour Beatty plc all of the issued and outstanding capital stock of the entities comprising the business of Parsons Brinckerhoff Group Inc, the professional services division of Balfour Beatty, for an enterprise value of US$1,242,500,000 plus an additional consideration for cash retained by Parsons Brinckerhoff of up to US$110 million. The deal, it confirmed, is subject to certain closing and post-closing adjustments and approval by Balfour Beatty shareholders.

The terms of the acquisition are approved by the Boards of Directors of both WSP and Balfour Beatty and, upon closing, Parsons Brinckerhoff President and CEO George J Pierson will become an executive member of the Board of Directors of WSP, ensuring his active role in the organization as well as continuity and seamless integration of Parsons Brinckerhoff into WSP at the highest level.

In its statement, Balfour Beatty confirmed sale of Parsons Brinckerhoff to WSP for a cash consideration of US$1,352.5 million (£820 million) and with a US$110 million (£67 million) amount in cash retained within Parsons Brinckerhoff.

Upon completion of the sale, the cash proceeds are intended to be used, as follows:

  • up to £200 million to be returned to shareholders;
  • approximately £85 million to reduce the Group’s pension fund deficit; and
  • the balance to be retained by the Group to ensure a strong balance sheet and provide increased financial flexibility.

The statement said that the competitive sale process demonstrated the value of the Parsons Brinckerhoff business within a rapidly consolidating global professional services sector, confirming that the consideration of £820 million, less £67 million of cash retained within Parsons Brinckerhoff, represents a multiple of 11x underlying EBITDA for the year ended 31 December 2013.

Following the sale, and the recent revaluation of the PPP portfolio, the statement said that the Balfour Beatty Group’s key strategic priorities are:

  • restoring the value of the UK construction business, including progressively returning it to peer group margins;
  • continuing to build on the good performance of the investments and services businesses;
  • leveraging the growth opportunities in US buildings, US civils, rail and power, and the Group’s Far East and Middle East Joint Ventures;
  • realising further indirect overhead savings and shared service efficiencies across the Group; and
  • continuing to assess all other value creation opportunities.

Balfour Beatty will be repositioned as an Anglo-American infrastructure group focused on construction, services and investments, comprising:

  • top tier national and regional construction businesses in the UK and US;
  • a leading international investments business;
  • a services division with a number of specialist construction and asset management businesses; and
  • successful construction joint ventures in the Far East and Middle East.

Steve Marshall, Executive Chairman of Balfour Beatty said: “The Board believes that the sale price of £820 million delivers both a significant return on our original investment and a compelling level of value creation for shareholders - which remains the key focus of the Board. The sale of Parsons Brinckerhoff follows the recent revaluation of our investments portfolio, which underlines the potential of this division to create value internally and across the Group. In the US, our core construction business is well positioned in a recovering market. In the UK we see the potential for margins to progressively recover to peer group levels. Our services business, meanwhile, is well placed to benefit from the growing investment in infrastructure. Together, these elements will provide a strong foundation for an incoming Group CEO to take the company forward."

The statement confirmed that Goldman Sachs International acted as lead financial adviser to Balfour Beatty and that BofA Merrill Lynch also provided financial advice in relation to the transaction.

In an internal email announcement, entitled A New Path Forward, to employees, Parsons Brinckerhoff President and CEO Pierson said that the merger will create "a global player of more than 30,000 employees" and that the new entity will have "complementary rather than duplicative skills”.

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