Aecom Reaches $2.4 Billion Deal for Management Services Unit

(Bloomberg) -- Aecom, targeted by activist investor Starboard Value, agreed to sell its management services division to a consortium of private equity firms including Lindsay Goldberg and American Securities for $2.4 billion.

The Los Angeles-based firm, one of the world’s top engineering and design groups, plans to use the proceeds from the sale to reduce debt and to repurchase stock, it said in a statement Monday, confirming an earlier report in Bloomberg News. The transaction is expected to close in the first half of fiscal year 2020, it said.

Aecom rose as high as 8.3% before settling up 5.2% to $39.08 at 11:02 a.m. in New York trading, giving the company a market value of about $6.2 billion.

“We are extremely pleased with today’s transformative and value-enhancing announcement, which significantly accelerates our planned debt reduction and commitment to repurchase stock,” Michael Burke, AECOM’s chairman and chief executive officer, said in a statement.

Aecom announced plans to spin off its management services unit in June. It argued at the time that the move would create a leading government services company for its clients, including the U.S. Departments of Defense and Energy, by leveraging its expertise in areas such as intelligence, cyber-security and information technology.

In fiscal 2018, the management services segment generated revenue of $3.7 billion, with operating income of $200 million and adjusted operating income of $239 million.

The plan to spin off the management services division was criticized by Starboard, the activist fund run by Jeff Smith, who said in a June letter that the plan didn’t go far enough. Starboard said it believed in addition to exploring an outright sale, Aecom could also offload its construction services business. There is also room for operational improvements in its design and consulting services business, Starboard wrote.

The company’s services include consulting, planning, architecture, engineering and construction management, among other areas, according to its website. The company said it has a $54 billion backlog of orders and had $20 billion worth of revenue in 2018.

Goldman Sachs Group Inc. and DBO Partners are financial advisers to Aecom on the deal while Wachtell, Lipton, Rosen & Katz are providing legal counsel. Cravath, Swaine & Moore are legal adviser to American Securities and Lindsay Goldberg.

--With assistance from Kiel Porter.

To contact the reporters on this story: Scott Deveau in New York at sdeveau2@bloomberg.net;Gillian Tan in New York at gtan129@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Linus Chua, Virginia Van Natta

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