At 04.30 Colorado time yesterday morning, in a series of internal communications including videos and emails, CH2M broke the news from its Denver headquarters to its employees it had been bought by rival US firm Jacobs, for £2.15bn.
The announcement came mid-morning here in the UK and it was not entirely unexpected. Rumours of the deal have been circling around for a couple of weeks. But now the sale has been agreed, CH2M employees are likely to be asking what it means for them.
There are positive signs regarding the value of expertise UK-based CH2M can bring to the table. Jacobs said a driver for the takeover was CH2M’s strength in the water and transportation sectors. Jacobs says that the water business alone represented a $100bn opportunity. In the UK CH2M has won some prestigious contracts in these sectors, such as programme manager for the Thames Tideway Tunnel. In February this year, HS2 Ltd awarded the £170M Phase 2b development partner contract to CH2M. Although it subsequently pulled out of the role over questions of potential conflicts of interest raised by rival bidder Mace, the fact remains that it was first choice.
Taking the question of the impact on the UK cost base, Jacobs said it wants to achieve £113M ($150M) of global cost savings per year by the end of the second year following the completion of the transaction. In part, these savings are expected to come from ”optimisation of corporate operations” and ”alignment of organizational structures”. Could this mean job losses? Nothing has been said. Jacobs has put aside £170 ($225M) for one-time costs to achieve savings in these areas among others.
But will working for Jacobs mean a big change for CH2M staff?
There is no doubt in the commitment and effort on the table to make this deal work. In a presentation to analysts yesterday, Jacobs said it would be “leveraging integration lessons learned” from past takeovers and had evaluated its transactions over the past decade.
The work now is about “capturing opportunities and mitigating challenges”.
It says it wants to retain talent and build on the common culture between the two firms. It also says that it wants to be realistic about the level of effort and time it’s going to take. However the firm wants an “early capture of hearts and minds”.
An integration management office (IMO) has been set up to oversee the merger. This will be jointly led by former president of Jacobs petroleum and chemicals Gary Mandel, who now takes on the role of executive vice president of integration for Jacobs, and CH2M executive vice president for growth and sales and Lisa Glatch.
As well as its own internal section, it is bringing in external advisors who have proven experience in integrating firms.
One of Jacobs’ last major acquisitions was Australian company Sinclair Knight Merz (SKM) in December 2013 for £980M ($1.3bn). In theory, the companies made for a good match, but there are mixed views in the industry over how successful the move was in the UK. So what might be the lessons learned from that experience?
New Civil Engineer has spoken a former SKM senior employee who wished to remain anonymous.
“Of the 900 SKM staff who were working in the UK at the time of the merger, I think only around 100 are still at Jacobs,” they said. “If you look at that retrospectively, was that a successful merger? No it wasn’t, and I think Jacobs know that.”
Of course it can’t be concluded that the claimed turnover was all due to the takeover, as almost four years later it would be expected that there is staff movement. But nevertheless, from the experience what would they advise the UK arms of these US giants to do to make it a success? The first element would be to ensure top-down co-ordination, something Jacobs has already committed to.
During the SKM merger, the former employee said some felt overlapping skills and clients became hard to manage with staff not knowing how they fitted into the new business. The source also said that, in their opinion, a lack of integration of the teams left it hard for the SKM leadership to engage with the merger.
The source said in their opinion not enough was done to engage the leadership and a difference of structures between the two UK arms. With a lack of influence, responsibility and accountability, frustrations started to creep in and within a year and a half, the firm lost many of the SKM leadership team, said the source.
“We didn’t see how we could remain engaged, we couldn’t see a future and how to carry our people across. Then it became difficult to stand up to the barrage of resignations that came in,” they said.
However, when compared to the experience in Australia, where the number of SKM staff outnumbered Jacobs staff considerably, and America where SKM did not have a presence, the takeover was a different story with a far smoother transition.
But New Civil Engineer’s source thinks Jacobs have got it right with CH2M. For a start, they said when Jacobs took over SKM, it paid the full amount in cash, which gave no financial incentive to the SKM leadership to make a go of the merger. This time however, the money has been split - 60% will be paid to the shareholders in cash and importantly 40% in Jacobs shares. As a result, if the merger is not a success, the leadership will also take the hit. This, in their opinion, will make a big difference to leadership engaging with the merger.
Our source also said since the SKM takeover, the company has a new chief executive in Steven J. Demetriou, who has already made positive management changes.
“I think with the new leadership structure, they will do what they can to get the most of the merger,” they said.
The deal is set to close by the end of the year.
New Civil Engineer has contacted Jacobs for a comment regarding SKM.
Katherine Smale was a former employee of SKM and subsequently Jacobs.