AECOM Sells Unit for $2.4 Billion

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AECOM Sells Unit for $2.4 Billion
Michael Burke

In its biggest restructuring move to date, Century City-based AECOM reached an agreement to sell its management services business to affiliates of two private equity firms for $2.4 billion.

AECOM’s Oct. 14 announcement marked a course change. In June, the company said it was planning to spin off the management services unit into a separate publicly traded company; the division generated roughly $3.7 billion in billings last year.

Instead, AECOM’s board announced the sale of the business to affiliates of New York-based private equity firms American Securities and Lindsay Goldberg. The deal is expected to close by March.

AECOM’s share price jumped 6% on Oct. 14 and kept rising through most of last week, closing Oct. 17 at $41.08.

The management services unit is run out of AECOM’s Germantown, Md., office near Washington, D.C. and is headed by group President John Vollmer. The unit — which has roughly 25,000 employees — provides facilities management, logistics, consulting, systems integration and information technology services.

Federal government agencies comprised roughly 90% (or $3.4 billion) of the division’s billings last year.

AECOM reported $20.2 billion in total revenue for the fiscal year ended September 2018 and reported $15.1 billion in revenue for the first three quarters of its 2019 fiscal year.

The management services unit accounted for roughly 18% of AECOM’s billings. The division has about 25,000 employees.

The move is part of a larger restructuring that started earlier this year in response to rising shareholder concerns that AECOM’s stock has underperformed its peers.

As of Oct. 17, AECOM’s three-year annualized shareholder return is about 13.9%, up from 5.8% in June and above the peer group average of 3.2%, according to figures compiled by Bloomberg. But its return ratio lags rival Jacobs Engineering Group Inc.’s 24% and KBR Inc.’s 22%.

AECOM earlier this year took other steps to add to shareholder value, including exiting the fixed-price bid segment of the construction market (considered the highest risk portion of that low-margin business), quitting some overseas markets, cutting internal costs and planning stock buybacks.

Chief Executive Michael Burke added that the sale “significantly accelerates our planned debt reduction and commitment to repurchase stock.”

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