Jacobs Engineering announced on Aug. 20 it would pay £250 million ($304.5 million) to acquire the nuclear business of the Scotland-based John Wood Group.
The deal is expected to be sealed in the first quarter of 2020, pending regulatory approval in the United Kingdom, according to the companies.
The acquisition will bring proprietary technology and nuclear laboratories in the United Kingdom into Jacobs’ Aerospace, Technology, and Nuclear (ATN) business, and a geographic footprint that will help the company expand into regions beyond its U.S. and U.K. bases, executives said during an Aug. 20 conference call with financial analysts.
“This strategic acquisition adds higher-margin technical consulting, enhanced research and development, as well as complementary decommissioning capabilities to our existing Jacobs Tier 1 full life-cycle nuclear business,” Jacobs Chairman and CEO Steve Demetriou said.
The Wood nuclear business employs more than 2,000 workers and is expected to produce $285 million in revenue this year. Its sale will help Wood cut its debt and “take a significant step towards achieving its target leverage policy,” the company said in its own statement.
The Wood Group provides project, engineering, and technical services around the world, with a focus on the energy industry. It has over 60,000 employees in more than 60 nations. Jacobs has over 80,000 employees around the world, with $15 billion in annual revenue.
Wood’s operations cover the full nuclear life cycle, including decommissioning, remediation, and radioactive waste management. In April, it was among six corporate teams selected to compete for more than $500 million worth of decommissioning work at the former Dounreay fast-reactor facility in Scotland. It also holds multiple awards for the Sellafield nuclear processing and cleanup site in Cumbria, including a contract valued at up to $1 billion over two decades for engineering design.
Wood’s nuclear branch does 90% of its business in the United Kingdom, with the remaining 10% split between Western Europe and the rest of the world. Major clients include Sellafield Ltd., the U.K. government-owned manager of the Sellafield site; the United Kingdom’s Atomic Weapons Establishment, London-based power company EDF Energy; and the ITER nuclear fusion research project.
“[W]e felt the strategic value to us was really quite limited, and we think the role of nuclear in energy transition will be quite limited,” Wood CEO Robin Watson said during the company’s Aug. 20 conference call for its latest earnings. “Obviously, Jacobs have a different view of it, and it was a transaction. They’ve got a much broader global nuclear business, which maybe fits in their jigsaw differently than ours.”
Jacobs’ nuclear business brings in about $1.2 billion in revenue: $800 million in the United States, from clients including the Department of Energy, U.S. Army Corps of Engineers, and Navy; and the remaining $400 million from EDF Energy, Defense Ministry, and other clients in the United Kingdom. Among its projects are decommissioning at Dounreay and cleanup of the radioactively contaminated Shallow Land Disposal Area in Pennsylvania for the Army Corps.
The Dallas-based company has been aggressive in expanding this business, paying more than $3 billion for its 2017 acquisition of CH2M. That made Jacobs, among other things, the owner of an environmental remediation provider for the Department of Energy at the Hanford Site in Washington state and other locations.
Industry sources have said recently Jacobs might also be eyeing some or all of financially troubled rival Fluor, which is the lead or partner in several major Energy Department environmental remediation contracts. One source said last week Jacobs is not necessarily finished with acquisitions.
A Jacobs spokesperson said the company remains open to additional acquisitions, but that it would take a “methodical and disciplined” approach to any deals. The spokesperson did not discuss the company’s potential interest in Fluor.
Together, the Jacobs and Wood nuclear businesses will have about 7,200 employees and revenue of roughly $1.5 billion, according to Jacobs’ Aug. 20 presentation. Roughly 70% of the portfolio will focus on nuclear cleanup, including dismantling or decommissioning of facilities. Twenty percent will involve support for defense nuclear operations and 10% on supporting nuclear power.
Jacobs Chief Financial Officer Kevin Berryman said the acquisition was the result of “ongoing discussions with the Wood team over an extended period of time.” The companies “ultimately were able to reach an exclusive arrangement for us to try and negotiate a final transaction. We’ve been working closely together over the last couple months to make that happen,” he told financial analysts.
Of particular interest were the assets Wood assumed with its own 2017 acquisition of British engineering and project management specialist Amec Foster Wheeler, Demetriou said. “The talent that they acquired, the leadership talent, has stayed with them and is really the main reason we’re acquiring this. Because it’s not only the strong experience that this legacy business has, but it’s this differentiated technical expertise.”
Should the deal fall through, Jacobs will owe Wood a breakup fee of £7.5 million ($9.1 million). Berryman played down the likelihood of that occurring: “There is no expectations that there will be any challenges associated with that, but we’re going to be thoughtful and allow for the regulatory authorities to ensure that they’re comfortable with the transaction as well.”
Demetriou emphasized what he said are significant upsides and limited negatives to the nuclear business. Contracts in the business offer low risk, as they are largely reimbursable and can extend for years, if not decades.
“Our current Jacobs nuclear business has a financially attractive operating profit margin and minimal working capital investment, resulting in a strong return on invested capital,” he said. That also applies to the Wood business, Demetriou added.
The global nuclear sectors offers extended opportunities for decommissioning projects, along with support for new or continuing nuclear power operations, according to Jacobs. The company is particularly eyeing opportunities in India and the Middle East, the CEO said.
