Engineering and construction giant AECOM has completed the $2.4 billion sale of its Management Service business to an affiliate of two New York investment firms.
Sale of the subsidiary to American Securities LLC and Lindsay Goldberg LLC closed on Jan. 31, according to an AECOM press release Monday.
The new company, called Amentum, is now a major contractor for the Department of Energy, Defense Department, and several nuclear-related agencies in the United Kingdom. It also houses AECOM’s former commercial nuclear decommissioning activities.
Amentum is a $4 billion business with 20,000 employees in the United States and internationally, in addition to 7,000 worker employed by the joint ventures it leads at Energy Department Cleanup sites. Its name is the Greek word for a leather strap used to propel a javelin straighter, farther, and faster.
The seller and buyers announced the deal in October. Los Angeles-based AECOM expects to tap proceeds from the sale to reduce debt in the current quarter of its 2020 fiscal year.
AECOM initially said in June 2019 that it would divest its government contracting unit via an initial public offering. But it soon scrapped that plan after drawing interest from ventures that wanted to the buy the business outright.
The former AECOM business is a lead partner in joint ventures holding several billion dollars’ worth of business for DOE’s Office of Environmental Management. The contracts include operation of the Waste Isolation Pilot Plant in New Mexico, cleanup of the Oak Ride Site in Tennessee, liquid waste management at the Savannah River Site in South Carolina, and tank waste operations at the Hanford Site in Washington state. The contractor is also lead partner in the team that last month won a potential 10-year, $10-billion contract for remediation of the Hanford Central Plateau. That award is the subject of a bid protest by a rival.
With AECOM leaving the DOE market, the publicly traded companies that are now potential rivals or partners to Amentum for Energy Department business include BWX Technologies, Huntington Ingalls Industries, Jacobs, Leidos, Parsons, Atkins parent SNC-Lavalin, Veolia, and Fluor—the latter of which plans to sell its government contracting business later this year.
AECOM got into government contracting in a big way with its 2014 purchase of URS Corp., which at the time held contracts including the Oak Ridge remediation venture. The company still does government work, such as development of new highways and buildings, through its Design and Consulting Services segment.
But with the sale of Management Services, AECOM will no longer be in businesses such as project and environmental management, sources said.
AECOM has yet to entirely close the book on its Energy Department concerns. Amentum will have to pay AECOM 90% of any financial award that might result from an ongoing dispute with the Department of Energy over remediation of a nuclear site in upstate New York, the Separations Process Research Unit (SPRU).
While the contractor finished cleanup of the former nuclear research site within the Knolls Atomic Power Laboratory in August 2019, it remains at odds with Energy Department over primary responsibility for schedule delays and cost overruns. The government and the former AECOM unit are in a formal dispute-resolution process on how much, if any, additional money the company is due.
In March 2018, AECOM was estimating the final cost would be around $460 million, but DOE had not reimbursed nearly $250 million.
For the first fiscal quarter ended Dec. 31, 2019, AECOM reported revenue of about $3.24 billion, down from $3.36 billion during the same quarter a year ago. Net earnings of $31 million also dropped a bit from about $32 million on a year-over-year basis. arnings per share of $0.26 for the latest quarter were down from $0.32 during the quarter ended Dec. 31, 2018.
Earnings for discontinued operations, as Management Services is now characterized, were $9.7 million, down from $19.5 million a year ago. Management Services was still part of AECOM during the quarter, but “discontinued” operations is an accounting term used for a company’s core business line that has been sold. It is reported separately from “ongoing” operations.
The discontinued Management Services accounted for $0.06 per share during the latest quarter, compared to $0.12 last time around.
AECOM continues to look for a successor to Chairman and CEO Michael Burke.
Burke, 56, announced in November that he plans to retire pending selection of a replacement. A company search committee is making good progress, the COE said during the earnings call. AECOM hopes to have a successor on board within the next couple of months.
Burke became chief financial officer at AECOM in 2006, president in 2011, and CEO in 2013.
He declined to answer a question from a Wall Street analyst on potential “suitors” or merger partners for the rest of AECOM after the Management Services sell-off. “We are not going to comment on speculation in the market about mergers and acquisitions.” The Los Angeles Business Journal and other publications have reported Montreal-based management and consulting company WSP Global could be looking to acquire AECOM.
