Balfour Beatty announced it is buying the US professional services business Parsons Brinckerhoff in a $626m (£380m) friendly takeover yesterday, which it plans to finance through a £353m cash call.
There has been speculation for a number of days that the construction and engineering group would ask investors for money as it seeks to extend its overseas and project management businesses. The deal, which is subject to shareholder approval, will be paid for by a £353m, three-for-seven rights issue, to be priced at 180p. The rights come at a 46.8 per cent discount of the stock's closing price on Wednesday. Balfour Beatty's shares yesterday closed up 7.9 per cent, at 371.3p.
"The deal fits the strategy we announced three years ago. Balfour Beatty is strong in its core businesses, but our infrastructure customers require us to offer a greater range of services," said Ian Tyler, Balfour Beatty's chief executive. "Being a market leader in the US civil infrastructure, transportation and power markets, buying Parsons Brinckerhoff is a transformation deal in this respect."
Professional services – a range of activities including maintenance services and project management – is in vogue as construction and contractor groups look to generate maximum revenues from their projects.
Mr Tyler ruled out any job losses as a result of the deal, insisting that the takeover was about growth. The announcement was welcomed by analysts, although some did warn that there is a risk that key people at Parsons Brinckerhoff may leave the combined company. "Buying professional services is about people, and people can walk out of the door, particularly if they don't want to work for a contractor," said Andy Brown, an analyst at Panmure Gordon.
"This does look like a good fit for the company, however. Parsons will allow Balfour Beatty to offer clients more of an end-to-end product, and it also fits in with what is happening in the US, especially in relation to the Obama stimulus plan."
The rights issue will be underwritten by JP Morgan Cazenove, RBS Hoare Govett and Citigroup. "I don't think there will be any problems with getting the rights issue away. Why would investors not buy at 180p when the stock is trading around the 370p mark?" said Mr Brown.
Parsons Brinckerhoff is an employee-owned group, which makes it harder to value. However, industry watchers said that the £380m price tag looked reasonable. "It looks like they are paying close to six times historic earnings," said Andy Gibb of Oriel Securities. "This does not look overly aggressive, although the deal is not earnings enhancing until 2011, so we will be looking to see if the group can find any synergies before then."
Last year, New York-based Parsons Brinckerhoff recorded revenues of $2.34bn. As well as its US operations, it also operates in the UK and Asia, giving Balfour Beatty a profile in India, China and Australia for the first time.